Life Insurance & Annuities Forum

I bought a whole life policy and was told the premium would vanish within 12 years. However, the premium never seemed to vanish. At this point, I want to do a 1035 exchange and put my cash value into a different policy, on the understanding that my premiums will cease henceforth while maintaining my death benefit. Is this the right move, or are there other alternatives?

Roger, New York

Here's the theory behind "vanishing premiums": With cash value life insurance, it is conceivable that the underlying investments will perform so well that the cash value can fuel the rest of your premium payments, making the policy "pay for itself" so that you need never write another premium check.

It is possible that, over time, you might be lucky enough to have the premium vanish forever — but under no circumstances should the agent tell you this is guaranteed. In fact, the agent should point out to you that whether your premiums vanish depends on the stock market's performance.

The vanishing premium concept becomes a misleading salespitch if the salesperson implies that the premiums are guaranteed to vanish, or that you can stop paying premiums within a guaranteed number of years. That's misleading because nobody can predict how well the stock market, and thus your cash value, will perform. So if you stop paying the premium after the promised time period and the investments haven't performed as well as promised, the policy lapses and you're left without life insurance.

If you feel you were misled by your insurer or agent, I suggest you contact the New York Department of Insurance (DOI), which has a consumer division.

For more information, read Anatomy of a misleading salespitch.

Back to the Forum

Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.