Meridian Resources

What You’ll Learn

General Policy Review: What to Look for First

Start by requesting an in-force illustration and reading your policy contract carefully, understanding features like loan provisions and dividend options, riders such as guaranteed insurability and term conversion, and growth assumptions for both the death benefit and cash value. Consider whether your insurer’s financial strength rating has changed and evaluate how your policy compares with other products available in the marketplace before deciding to keep, surrender, sell, or exchange it.

Death Benefit and Cash Value: Is the Coverage Right-Sized?

If your death benefit is larger than you need, options to reduce it include a reduced paid-up election, a direct request for a decrease, or switching from an increasing to a level death benefit. Conversely, if coverage has become insufficient, you can increase the benefit through dividends, purchasing paid-up additions, additional premium payments, or exercising a guaranteed insurability rider. Cash value growth can often be boosted by redirecting dividends or adjusting investment subaccount and indexing allocations. Use the expected future growth rate, not the historical rate since inception, as your benchmark.

Policy Loans: Opportunities and Risks

Policy loans can serve as an income supplement, a volatility buffer, or alternative financing, but they carry real risks. Outstanding loans on a lapsed policy can trigger a taxable event, making it essential to monitor interest rate factors (fixed vs. variable) and the overall loan balance relative to cash value. If your policy is at risk of lapsing, consider rescue strategies such as additional payments, paying off loans, redirecting dividends, or reducing the death benefit.

Tax Issues: MEC Status, Withdrawals, and Surrenders

If your policy has become — or is at risk of becoming — a Modified Endowment Contract (MEC) by failing the 7-pay test, distributions are taxed on a last-in, first-out (LIFO) basis and a 10% penalty applies before age 59½. Surrendering a policy triggers ordinary income tax on gains in cash surrender value; a sale may also produce capital gains on amounts above CSV. A Section 1035 Exchange can allow a tax-free transfer to another life insurance policy, annuity, or qualified LTC premium payment vehicle.

Estate Planning: Beneficiaries, Liquidity, and the ILIT

Death benefits are income tax-free to beneficiaries but are potentially subject to estate taxation. Transferring your policy to an irrevocable life insurance trust (ILIT) can remove it from your taxable estate, though the 3-year lookback provision applies to existing policies transferred. Be mindful of the Goodman Triangle: when the insured, owner, and beneficiary are three different people, a gift tax issue can arise. If your estate contains illiquid assets, preserving life insurance can be a critical source of liquidity for your heirs.

Health Changes and State-Specific Considerations

A health improvement since policy issuance may warrant applying for a better underwriting classification and lower premiums, though this typically requires the policy to have been in force for at least a year. A health decline may lead you to increase coverage via riders, consider a viatical settlement, or activate an accelerated death benefit rider. Don’t overlook state-specific rules around creditor protection and guaranty association limits that may affect the value of your policy.