Lateral Transfer of Life Insurance: Moving Policies Between Institutions

Can You Transfer a Life Insurance Policy?

Yes, many life insurance policies can be moved from one insurer to another through a process called a lateral transfer, but it is not automatic. The new insurer must accept the policy's terms, and the transfer may involve surrendering the old policy, paying a new application fee, and meeting underwriting requirements.

How a Lateral Transfer Works

1. Request a Transfer: Contact the insurer holding the policy and request a transfer. They will provide a transfer request form and outline the required documentation.

2. Policy Evaluation: The new insurer evaluates the policy's cash value, death benefit, and premium history. If the policy is a whole life or universal life, the surrender value is calculated.

3. Surrender or Roll‑Over: In many cases, the policy must be surrendered to the original insurer. The surrender value is paid out, minus any penalties, and then used to fund the new policy.

4. New Application: The new insurer may require a new medical exam and underwriting. If the policy is term life, a simple transfer of the death benefit amount is possible.

5. Transfer Completion: Once the new insurer approves the application, the new policy is issued and the original policy is closed.

Key Considerations

• Costs: Surrender charges, new application fees, and possible underwriting costs can add up.

• Coverage Gap: There may be a short period between surrender and new policy issuance during which coverage is inactive.

• Policy Features: Riders such as accelerated death benefit or waiver of premium may not transfer automatically.

• Tax Implications: Surrendering a policy can trigger taxable gains if the surrender value exceeds the policy's cost basis.

When Transfer Is Not Possible

• If the policy is a group policy linked to an employer, it typically cannot be transferred to an individual insurer.

• Policies with significant policy loans or outstanding debt may be ineligible.

• Some insurers prohibit transfer of policies that have been in force for less than a specified period.

Alternatives to Transfer

• Rollover: Transfer cash value to a new policy without surrendering the old one, but this may trigger tax consequences.

• Policy Sale: Sell the policy to a third party, such as a life settlement provider, if you no longer want the coverage.