Can an individual elect to cash out his life insurance policy into the

[John A]

A plan has life insurance policies as part of the assets of the profit sharing plan. Can an individual elect to cash out his life insurance policy into the profit sharing source of the plan? The profit sharing source is participant-directed. Does this depend on the plan document, or is this action prohibited? If the action could be acceptable, would the plan document have to specifically provide for it?

[rcline46]

It could be that the insurance is not voluntary. In this case the participant could not surrender it.

However, in most profit sharing plans the insurance is voluntary (ie participant directed) and could be surrendered. Such action would not necessarily be prudent due to loss of death benefit, and the insurance probably out performed the other investments in 2000 and looks like it will for 2001. Dropping insurance really needs to be discussed carefully.

[RCK]

I agree with rcline46 in concept but maybe not in investment philosophy.

Any change in investment alternatives is a fiduciary decision, and not to be entered into lightly. So, be careful about adding an option, removing an option, or keeping one.

If I were required to buy insurance that I did not need or want, I'd be very upset.

[Bill Berke]

If the insurance is not needed and this is a part.-directed acount, then you could cancel as RCK and rcline46 have stated. Another thought is to have the cash value remain in the plan (the plan borrows the cash value) and then the policy (net cash value) gets distributed (with a policy loan). This works in a number of situations depending upon the facts. But as RCK said - plan carefully. If the fiduciary wants to get rid of the insurance as part of the investment policy, this is acceptable, but the insurance must be first offered to the insured. There is a formal proceedure to follow in this instance.