6 Reasons to replace insurance, life settlement is one

1. Are current policies more than 10 years old? Since insurers revise mortality tables periodically to reflect how long people are really living, the existing policy may be overpriced. "A 50-year old today can buy a 20-year term life insurance policy for less than what a 40-year old had to pay for identical coverage only a few years ago," says Mauro.

2. Am I nearing retirement? Those about to retire on a pension plan are typically given a choice between receiving full benefits that stop when they die, or lower monthly payments in exchange for "survivor benefits" that continue until their spouse dies. "Instead of reducing pension benefits, it may be cheaper to replace existing life insurance with a new policy sufficient to cover your spouses living expenses should you die first." Those who are depending on 401(k) or IRA plan assets to cover retirement may want to drop life insurance policies altogether and replace them with annuities that provide a monthly benefit to both husband and wife for as long as they live.

3. Did I borrow against the cash value of my life insurance policy? Anyone who owes money on a life insurance policy loan can be in for a shock if they do not cancel or terminate the policy correctly. "Almost daily, clients tell us that when they cancelled the policy, their insurance company reported the proceeds from an unpaid loan to the IRS as income. This resulted in having to pay taxes on money spent long ago." This problem, known as phantom income, can be eliminated, but not after the fact. Life insurance products that extinguish the outstanding loan are available. Despite the increasing number of insurance policy holders who owe money on these loans and are moving toward a tax explosion, the industry is doing little to inform them about ways avoid income taxes on this phantom income."

4. Is a cash value policy sorely outdated? Life insurance products -- especially so-called variable life and universal life -- have been markedly improved. More investment options have been added. Internal costs for management and other expenses -- paid by the consumer -- are often lower in new policies. "In particular, drop policies from financially troubled insurance companies that have increased internal costs to cover a financial shortfall," urges Mauro.

5. What about the need for long-term care insurance? There are several ways to protect against the financially ruinous burden of paying for long-term care. Among them are new policies that combine both death and long term care benefits. A combined policy can provide, say, $500,000 at death and $250,000 for long-term care more economically than having two separate policies. "If you buy a policy that pays both death and long term care benefits you can be sure someone will collect from that policy someday," quips Mauro.

6. Have my needs changed dramatically? Says Mauro; "Those who have closed a business, divorced, or paid off a mortgage, may still be paying for life insurance they no longer need. As a bonus, consumers may get a significant payment from the insurer when they cancel. Surprisingly, some polices are worth more than their cash value when cancelled through a life settlement company.

Source: AP/Yahoo!