Old life policies can bite you in the.......

Discusses abuses and issues in financial planning, including questionable compensation practices, bogus institutes and accreditations, bad products, annuity abuse, inappropriate life insurance sales, living trust mills, and related misconduct. Also answers questions about usually legitimate but developing areas such as life insurance premium financing, life settlements, charitable gifting strategies, etc. Includes discussion of asset protection scams.

Re: Old life policies can bite you in the.......

Post by Olsenfin » Fri Feb 10, 2012 11:29 pm

Yes, it's quite true that a policy in which premiums were paid by Automatic Premium Loan may continue in force after the owner believes the policy was cancelled, even to the point where the loan balance exceeds the premiums paid by the owner. When such a policy actually lapses, that excess will be taxable as Ordinary Income. So one might argue that the policy's lapse "bites" the owner.

But we ought also to consider that (a) in that situation, the policy owner had insurance protection for the entire period and, had he or she died during that period, the policy death benefit (net of the loan) would have been payable to the beneficiary.