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Old 08-20-2015, 07:14 AM   #8
Franchise Player
Join Date: Dec 2006
Location: Calgary, Alberta

Well I obviously can't tell you on a public forum that you should cancel coverage, because of potential liability issues and things like that. Theoretically though, there are a couple options here that people generally consider:

1) Cancel the policy and collect the cash surrender amount. This is likely taxable, so that is one factor to think of as well.

2) Transfer the ownership of the contract from the parents to the children. This would mean that the children can now designate beneficiaries as well. The big advantage with this is that the children then have a tax sheltered investment going forward as well; it grows without taxes payable. Of course the insurance is a benefit, but oftentimes the values are not very large. The other factor here is that the children now get that cash surrender value when/if they surrender that policy, and that might not be what the parents want to do.

Depending on what the policy is, how much is in there and factors like that, you might also have the option to stop paying the premiums all together, transfer ownership to the children and have it continue building. This would be because the underlying investments are receiving more per year than the premiums. It's hard to guess whether you're in this position, and really what you need is an illustration from the company that holds the policy to see what makes sense.

Of course let me know if you have any questions!
Slava is offline   Reply With Quote