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filling out life insurance formWhen interest rates fall, homeowners should consider refinancing their mortgages when the long-term savings from paying lower interest exceeds any refinancing closing costs. This is simple finance 101 – and most take advantage of it.

What many have not done is to apply this exact same cost-reduction wealth-enhancement strategy to another of their long-term assets – permanent (also called “cash value”) life insurance.

How life insurance and real estate are similar: taxes and variable costs

Both real estate and cash value life insurance enjoy a very powerful tax benefit that few other asset classes are afforded: the ability to move from one piece of real estate/life policy to another using a tax-free like kind exchange. For real estate, these exchanges are controlled under tax code section 1031; for life insurance, 1035. It is exactly this shared tax benefit that plays a role in the strategy here.

In addition to their similar tax benefits, both real estate and cash value life insurance have inherent ongoing costs associated with them. Most relevant are the interest cost of a mortgage for real estate and the mortality and expense costs of life insurance (COI). These costs are charged over time and the key is to monitor and position yourself advantageously if the market changes to benefit you.

7 reasons to refi/exchange a cash value policy

In other articles, we dive deeper into these reasons; here, we will quickly mention them:

  1. Industry-Wide COI Reductions: As people live longer, COIs drop, making today’s policies less costly.
  2. You Are Still in Great Health: If you can still qualify for a top underwriting rating, you may have the most to gain by exchanging into a new policy to “revive” a lower COI structure.
  3. Costs Structures Between Companies: Separate from the specific COI expense, insurance carriers vary in their overall product pricing structures so exchanging from one carrier’s products to another’s can create additional long-term cost savings.
  4. Moving to Policies with Lower Access Costs If part of your strategy in owning a policy is to access cash values, access costs, such as policy loan interest charges, are just as important as accumulation costs.
  5. Moving to Mutual Insurance Companies: Mutual companies are owned by the policyholders, who will likely get the benefit of future COI reductions — as opposed to policies issued by stock companies where these savings may just mean more profits for investors.
  6. Taking Advantage of New Product Features: Policy elements such as return multipliers, index participation rates, long-term care riders and benefit distribution riders are new to the industry over the past few years and can be extremely beneficial for the right client.
  7. Moving from a Bond / Dividend Based Whole Life Policy to One with Some Stock Market Exposure: The last decade has not been kind to bonds and other investments that are based on interest rates, like whole life policies. As a result, for many clients looking for a decade or more of future growth in their policies, an exchange may make sense.

Case Study: Burt Improves Performance by “Refi” to Different Type of Product

Burt purchased a whole life policy at age 40 from a large well-known carrier; he is now 52 and curious about an exchange. While his carrier is a very solid one, as is their whole life product, it is also one known in the industry to have relatively high expense charges. Burt was super-preferred when he purchased the policy initially and has maintained good health.

We modeled several scenarios for Burt. We found that, if he were to 1035 exchange his whole life policy to a universal life policy with another top-rated company, he would enjoy significantly-improved performance through the “refi.” For Burt, a 52-year-old “preferred” risk, and assuming a 5.85 percent rate of return for each policy, the results are quite dramatic. The distributions in his current whole life policy are projected to be $53,696 annually for 20 years starting at age 65. With the same assumptions, the distributions from the new universal life policy would be $98,476 annually for 20 years starting at age 65. This is nearly $45,000 of annual improvement – or nearly $900,000 of increased distributions over 20 years!

This dramatic improvement is due to the factors discussed above: (1) likely improved COIs moving from the whole life product to the universal product and (2) the improved costs of accessing the cash values in the universal life policy vs. the whole life policy (see reason #4 above).


Anyone who owns cash value life insurance should at least explore an exchange to a more efficient policy to determine if it would be more beneficial in the long run. Nearly everyone reviews their mortgages and contemplate refinancing; an exchange is similar, and may work just as well. We encourage you to examine your options.

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David B. Mandell, JD, MBA, is an attorney, consultant and author of more than a dozen books including Wealth Management Made Simple. He is a principal of the wealth management firm OJM Group, along with Jason M. O’Dell, MS, CWM, who is also a principal and author They can be reached at 877-656-4362 or