Can I Use Reduced Paid Up On Four Of My Policies To Use The New Found Money As Payment For My Daughter's Finale Expense Policy?

I have six policies that equal 31.000.00. I want to do Reduced paid up on 4 to have the monies to buy a new policy for my daughter’s finale expense insurance. My insurance agent told me that this is complicated for him with the replacement laws. Can I do this?

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Ted Ratliff
Owner, SFS Associates,
First, the Reduced Paid Up feature of your policy allows you to stop making premium payments and accept a reduced paid up option for whatever the reduced face amount is at the time you utilize the option. For example if your 20 year old $20,000 policy has a Reduced Paid Up of $12,000 and you utilize the option you would have a paid up policy of $12,000 with no further premium payments required. If the amount of the reduced paid up insurance is sufficient for your personal needs, you could use the money you paid for your policy and pay premiums on a policy for your daughter. This is not complicated at all and replacement is not an issue since you are keeping your policy. The Reduced Paid Up option does not allow for any up front cash however other than the money you save on premiums. Some Mutual companies that pay dividends. You could take the dividends in cash and use them to help pay for a policy if you have a policy that pays dividends. You could take a loan on the cash value of your policy but I really do not recommend doing that since the loan will reduce your death benefit or you could cash surrender a couple of policies if you do not need the insurance.
Answered on January 6, 2015
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Jim Winkler
CEO/Owner, Winkler Financial Group, Houston, Texas
That is an interesting question! I want to make sure you understand what exactly you are asking, and what would happen, as it seems as if the agent you spoke with may have misunderstood you.
You have 6 policies totaling $31k in face value. Without knowing how long you've had them, let's assume they are each at least a couple of years old. There are some things to be aware of here - taking reduced paid up coverage on 4 of them might seem like that would leave you with about $20k in coverage, but chances are it will actually be considerably less than that. How much coverage were you wanting to keep on yourself? The second thing to be aware of is that you won't receive any money from taking the reduced coverage, only what you would have paid monthly on them. So again, understanding that I have no information on your policies to go on, let's assume that they are all for $5k apiece and you pay $40 total a month in premiums. What you will gain from taking the reduced coverage is considerably less than $20k insurance for you, and $40 a month more money.
Assuming that you are good with considerably less insurance coverage for yourself, and that your daughter's policy can be purchased for less than that $40 a month, you are good to go. Since you are not surrendering any of the policies, there are no replacement issues to worry about, as you're not replacing anything.
There's a whole lot more information that I would need to really steer you right, so maybe it would be wise on your part to contact someone other than whom you spoke with the first time, and get a better idea. Good luck, and thanks for asking!
Answered on January 7, 2015
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David G. Pipes, CLU®, RICP®
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Taking a reduced paid up policy, or four reduced paid-up policies will lower the death benefit available and eliminate future premium requirements. If that is what you are hoping to achieve, that would be a way to do it. If you do that you could use the money you were already spending and fund a life policy for your daughter.
Answered on January 8, 2015
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