whole life insurance

[eilano]

Anyone know how to get whole life insurance out of a retirement plan?

[goldtpa]

There are only two ways. Transfer the policy to your name by filling out a change of owner form. Or surrender the policy for its cash surrender value.

By taking possession of the policy you will pay taxes on the cash surrender plus 10% penalty if you are under age 59 1/2.

If you surrender the policy you will obviously get a check and do whatever you want with it.

[jevd]

You may also purchase the policy for its cash value under a DOL PTE.

[Guest asire2002]

Goldtpa, I'm not sure I understand your response. Since the policy is being held by a qualified plan, surrendering it would mean the value is deposited back into the participant's account, not distributed to the participant in cash. If the participant wants to get the actual policy out of the plan, the conditions of the Prohibited Transaction Exemption must be met; you can't simply "transfer" the policy to the participant.

[ljr]

The PTE permits the qualified plan to "sell" the policy to the insured for its current cash value. The plan then transfers ownership to the insured and the insured names his own beneficiary instead of the plan.

Most insureds don't have the cash so here's another idea - the plan may be able to take a maximum loan against the policy's cash value and deposit the loan proceeds to the plan. It can then transfer ownership of the policy to the insured and the cash value will be close to zero following the loan. That small value is taxable income to the insured. The death benefit will be reduced by the amount of the loan and the insured will need to pay premiums to keep the policy in force. The insured may, in some unusual situations, also need to pay interest on the loan

If the idea is to just get rid of the life insurance, the plan can surrender the policy for its cash value and deposit the proceeds to the plan. This is the easiest way to solve the problem.

Surrender is what I'd recommend unless the participant/insured needs the coverage and can't get a new policy due to current health.

Assuming this is a defined contribution plan, transactions relating to the insured participant affect his plan account.

If this isn't what you need to know, can you give more information on what you want to accomplish?