Life Insurance Shouldn’t be Complicated…. But sometimes it is

By LouAnn Schulfer, AWMA®, AIF® Accredited Wealth Management AdvisorSM, Accredited Investment Fiduciary® , Published Author |

Years ago, the trend was for life insurance agents to sell whole life, universal or variable life insurance policies on the potential to grow the cash value inside of the policy.  Cash value can grow by overfunding the policy, meaning you put more money into the policy than the premium required to support the death benefit, or cash value can grow by dividends, interest or investment return on the cash value exceeding the expenses inside of the policy.


Life insurance seems like one of those things that shouldn’t be complicated, but especially with cash value policies, sometimes it is.  I was attending a continuing education session recently that examined a case where a young agent offered to review an in-force policy for a retired couple.  The agent pointed out that the interest rate that applied to money borrowed from the cash value of the policy was much higher than current policies offered.  Since the couple had borrowed money from the policy and were in fact paying interest, the young agent offered to exchange their existing policy for a new one.  The insured passed underwriting and the remaining cash value from inside the old policy was transferred to the new one.  The surprise came at tax time when the couple received a tax form stating they owed income taxes on the money borrowed from the old policy, since it was no longer in force.  The young agent called both companies and asked if the transaction could be reversed.  Unfortunately, it could not and a large tax bill was unintentionally and unexpectedly the consequence.


I’ve also reviewed many policies over the years that were misleadingly sold as retirement savings vehicles.  I have yet to find one person who has retired on the proceeds of their cash value life insurance policy.  If you intend to use the cash value from your policy, understand the difference between loans and withdrawals, and how taking money out of your policy can affect your death benefit.  Ask how long the money can remain out of the policy on a guaranteed basis, without the policy lapsing.  A lapsed policy with loans will not only result in loss of your death benefit but will also likely result in a tax bill to the owner of the policy.


Life insurance seems like one of those things that should be pretty straight forward.  You should be able to buy a policy, pay the premium and know the death benefit is going to pay out when your beneficiaries need it.  Life insurance shouldn’t be complicated.  But sometimes, it is.



LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or , or


This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.