Question: I intend to cancel one of my life insurance policies because I no longer need as much coverage as I once did. I understand there may be some cash value on the policy. How do I find out about this? And how do I collect if there is cash value ?

Answer: I assume you're talking about a whole life policy, which usually begins to accumulate values after the policy has been in force a couple of years. (In most cases term insurance does not generate cash values).

What you're really asking about are non-forefeiture values, which includes two other options in addition to cash value. If you cancel a policy which has been in force long enough to have non-forfeiture values then you can choose whichever option you prefer.

Printed right in your policy contract you will find tables giving the various values at yearly intervals after issues for each of the three alternatives. These values are usually shown in terms of $1,000 in policy face amount.

The first option is the cash value. If you choose this alternative when you cancel the policy, the policy, the company will send you a check for the accumulated cash value plus any earned dividends (if it is a participating policy) minus any outstanding loan balance.

If you select the second option, extended-term insurance, the company will provide continuing insurance coverage for a specified period of time for the full face amount of the policy. You make no more premium payments for this coverage; it has been paid for by the cash value - which the company then retains.

Paid-up life insurance, the third option, is like extended term in that it provides continuing coverage without any further payment of premiums. Instead of the full face amount for a limited time, however, this option provides paid-up coverage for the rest of your life but in an amount that is less than the face amount on the original policy.

Which one of these three alternatives is best depends on the circumstances in each case. If you have no need at all for any of the insurance the particularly policy represents, take the cash value and either spend it or invest if.

If you can't afford the premiums but have a need for the protection, then one of the other options would be a better choice. If you expect the insurance to be needed for a limited period of time but you would like the maximum coverage, then select extended term.

But if your need is for lifetime protection and you can accept a lower level of protection, then paid-up life is the way to go.

Q: I would like to change the beneficiary on my life insurance policy. Can I do this in my will or do I have to change it on the policy itself ?

A: The only time the proceeds of a life insurance policy can be distributed by instructions in a will is when the estate of the insured is the beneficiary.

If you have a beneficiary named in the policy, payment of the proceeds to that beneficiary is a legal obligation of the insurance company. You can't change the terms of the insurance contract between you and the company by your will.

The only way to change the beneficiary, then, is by modifying the policy itself. This is not a complicated procedure. Every life insurance company I know of has a special - and relatively simple - form for designating a change in beneficiary.

Q: I've been leaving the annual dividends on my life insurance on deposit with the company. What happens to that money if I die?

A: The accumulated dividends are not lost. The dividend balance (plus earned interest) will be paid to the beneficiary in addition to the death benefit (usually the face amount of the policy).

Instead of leaving the dividends on deposit, you can have the dividends sent to you in cash each year. In today's money market you can get a substantially higher return than the relatively low interest rate paid by most insurance companies.

A third option is particularly attractive if you need additional life insurance but for health reasons are unable to get a new policy.