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Nitesh Patel
Finance | Financial advice

By Nitesh Patel

As you’re sorting through outdated files and mounds of old paperwork, you find an old, lapsed life insurance policy. What do you do? Before throwing it out and forgetting about it, think twice. Could the insurance help your family pay estate taxes? Could it provide always- needed funds to a favorite charity when you pass on? Are there any other reasons you or a loved one would benefit from having the protection it once provided? You may have just discovered a financial tool that – with minimal time and investment – could once again become an important piece of your financial future.

One of the benefits of owning a life insurance policy is the variety of options it presents to the policyholder. For example, if you have a whole life policy that lapsed within the past five years, you may be able to get it reinstated by simply passing a physical exam and paying the back premiums plus interest. Oftentimes, this is worth the time and money if you have a need for the insurance -- especially if the policy was originally taken out many years ago.

The annual premium of a reinstated policy is based on your age at the time the policy was first issued. This often means the original premium will be less than if you took out a new comparable policy today with premiums based on your current age. In addition, because a new set of startup expenses need not be paid, the cash values and death benefits of a reinstated policy may very well grow more efficiently than with a new one.

Another reason to check into the policy’s current status is because it may have accumulated a “cash value.” In some cases, when a policy lapses, the existing cash value is used to purchase a reduced amount of “paid-up” life insurance. If this is the case, you could have a “paid-up” policy that requires no further premium payments.

If you find out the old policy does have some value and it is at all possible you could need the insurance protection it once offered sometime in the future, you may want to contact the insurance company to see if you can start paying premiums again. If however, you decide you would prefer to have the cash, you have a couple choices:

You may be able to access the cash value through withdrawals, taking dividends or by taking a policy loan. While policy loans need never be repaid, the death benefit will be reduced by the loan amount and any accrued and unpaid interest. There may be tax implications if you were to surrender or lapse the policy later on. Paying the loan interest each year will prevent it from compounding and further depleting the policy’s cash value and death benefit. If you have no further need for the insurance, you can simply return the policy to the company in exchange for any remaining cash value. Be aware though, this might also trigger a taxable event. The representative from the insurance company should be able to tell you the amount of any taxable gain you might incur upon surrender.

The bottom line is hold on to your life insurance policy – even if it is old and lapsed – until you are certain it holds no value whatsoever. You can call the company that issued the policy or your insurance representative to discuss all your options. You may find that the reinstated policy will provide you or your family with benefits for years to come.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

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