What to Do When Your Father Took Out a Universal Life Insurance Policy on You

Understanding the Policy You Inherited

You have a universal life insurance policy that your father took out when you were young. This type of permanent life insurance combines a death benefit with a cash value component that grows over time. Unlike term life insurance, which covers you for a set number of years, universal life insurance is designed to last your entire lifetime — as long as premiums are paid and the cash value remains sufficient to cover costs. If your father named you as the insured, the policy is now yours, and you have several paths forward depending on your financial goals and the policy's current status.

Many people in this situation do not realize they are the owner or the insured of a policy that has been accumulating cash value for decades. The first step is understanding what you have, what it is worth, and what choices are available to you.

How Universal Life Insurance Works

A universal life insurance policy has three core components: the death benefit, the premium payments, and the cash value. The death benefit is the amount paid to a beneficiary upon the insured person's death. Premium payments go toward both the cost of insurance and the cash value account, which grows on a tax-deferred basis. The cash value can be borrowed against, withdrawn, or used to pay premiums if the policy has built up enough value.

Universal life policies are flexible. Premium amounts and payment schedules can often be adjusted, and the death benefit may be increased or decreased. However, this flexibility comes with risks. If the cash value does not grow fast enough to cover the cost of insurance and other charges, the policy can lapse. This is a common concern with older policies that were taken out decades ago under different interest rate environments.

Finding Your Policy Details

If you are not sure where the policy is or what it contains, you have several options to locate the information. Start by asking family members if your father kept records of his insurance policies. Check his personal files, tax returns, or financial statements, which often list insurance accounts. If your father has passed away, the executor of his estate should be able to provide a copy of the policy or point you toward it.

If you cannot locate the policy through family records, you can contact the state insurance department in the state where your father lived. Many states maintain free policy locator services. You can also check the MIB Group database or use the National Association of Insurance Commissioners' policy locator tool. If you know or suspect the name of the insurance company, contact their customer service directly with the policyholder's name and your date of birth to request a policy summary.

Your Rights and Options

Once you have the policy details, you need to decide what to do. As the insured and possibly the owner, you have several options available:

• Continue the policy: Keep paying premiums and maintain the coverage. This preserves the death benefit and allows the cash value to continue growing.
• Surrender the policy: Cancel the policy and receive the cash value, minus any surrender charges and outstanding loans. This ends the death benefit.
• Take a loan against the cash value: Borrow from the cash value without surrendering the policy. The loan accrues interest and reduces the death benefit if not repaid.
• Make a partial withdrawal: Take some cash from the cash value while keeping the policy active.
• Reduce the death benefit: Lower the coverage amount to reduce premium costs and free up cash value.
• Let the policy lapse: Stop paying premiums and allow the cash value to be used up by the cost of insurance charges.

Comparing Your Options

Tax Implications You Should Know

The tax treatment of a universal life insurance policy depends on how you use it. Cash value growth is tax-deferred, meaning you do not pay taxes on the gains as long as the money stays inside the policy. If you surrender the policy, any gains above your total premiums paid are generally taxable as ordinary income. If you take a loan against the cash value and do not repay it, the outstanding loan amount may be subtracted from the death benefit and could create a taxable event for your beneficiaries.

If the policy is part of your father's estate or if your father transferred ownership to you within three years of his death, there may be estate tax implications. Consult a qualified tax professional or estate attorney to understand your specific situation before making a decision.

When to Seek Professional Advice

A universal life insurance policy that has been in force for decades can have complex features, including current interest rates, surrender schedules, cost of insurance charges, and rider structures. A fee-only financial planner or insurance specialist can review your policy illustration, project how long the cash value will last, and help you compare the value of keeping the policy versus surrendering it. This is especially important if the policy has a large death benefit or if the premiums have been increasing over time.

Moving Forward

Having a universal life insurance policy that your father took out when you were young is a financial asset, but it requires active management. The worst thing you can do is ignore it. Policies left unmonitored can silently lapse, leaving you with no coverage and no cash value. Take the time to locate the policy, understand its current status, and evaluate your options with the help of a qualified professional. Whether you choose to keep it, borrow from it, or surrender it, the decision should be based on a clear picture of the policy's value and your own financial needs.