Do You Really Want to Make the IRS
the Beneficiary of Your Life Insurance?
If you are over the age of 65, or have someone you care about who is over 65, or you hope to be over the age of 65, please listen up!
What we’re about to tell you could have a profound effect on your wealth or the wealth of a loved one. And since it’s relatively new, chances are that you’ve never heard it before.
What is this new financial tool? It is called a “Life Settlement”.
A life settlement, a relatively new kind of financial transaction, basically involves the buying and selling of a life insurance policy.
There are many ways you can benefit from selling your life insurance policy, but first, let’s focus on a major way that it can be used in estate planning. In particular, you may want to protect your life insurance policy from estate taxes. In order to do so, you may need to SELL your current life insurance policy and buy one more suitable.
Let’s take a look at how this works.
If you are like most people, you own your life insurance policy in your own name. This creates a less than ideal situation, because the death benefit can become part of your estate, and therefore subject to estate taxes.
But this can be remedied by having a policy that is owned by an Irrevocable Life Insurance Trust (ILIT). To do this, you need to sell your current policy for as much money as you can get for it, which frees up money to pay for a new policy owned by the ILIT.
With a properly set up ILIT-owned policy, the death benefit can pass income and estate tax-free to your beneficiaries.
So if your estate is large enough to worry about estate taxes, you need to consider making use of a life settlement in order to transfer your life insurance benefits to your heirs safe from income and estate taxes.
Call us, and our office can help you determine exactly how much you would save your heirs in income and estate taxes by repurchasing life insurance inside an ILIT — if anything. We refuse to recommend to you anything we don’t believe will help protect your wealth.
Why sell your policy to a Life Settlement company?
The short answer is — because you can get paid much more.
You see, one type of “selling” of a life insurance policy has always been possible for holders of permanent life insurance policies. If you owned a life insurance policy, you could simply surrender your policy to the insurance company in exchange for what is known as the “Cash Surrender Value.” Generally, this is the value of what you paid in premiums, in addition to any earnings on that money while in the life insurance account.
Selling your policy to a Life Settlement company, however, can provide you with with a much larger sum than you could get from surrendering your policy to the insurance company.
This has been made possible in recent years by the creation of a secondary market for life insurance policies. No longer are the transactions simply between the policy holder and the insurance company; third parties can now come in and buy the insurance policy from the owner.
Because of these changes, people who hold term insurance policies may possibly be able to get cash for their policy too. Until now, holders of term life insurance have not had any way of getting money for their policies, like the owners of permanent life insurance have had.
So if you think you might have an estate tax problem, and would like to see how much you can save your heirs by repositioning your life insurance inside an ILIT, call us at 1 (805) 376-8070.
What are other reasons someone would want to sell their life insurance policy?
Let’s take a look.
First, you may no longer have a need for the life insurance. Perhaps your intended beneficiary has already passed on. Or, possibly you needed the life insurance to protect your family primarily during the working years, when the estate was still being built through the work income of the insured member.
Second, premiums may be due and you are about to let the policy lapse because you can no longer pay them, or your premium money is needed elsewhere.
Third, and related to the last reason, you may have an urgent need for cash — perhaps to maintain a particular lifestyle, or to meet medical expenses.
Fourth, and also related to the second reason, perhaps you own a life insurance policy near the end of its term. With the particular term policy, additional premiums are required to convert the policy to a permanent death benefit policy. If you don’t have the money to convert the policy, you can still possibly obtain money by selling it.
Should you or someone you care about consider a life settlement? The advantages can be quite remarkable, and it can provide opportunities and solutions where it seemed like there were none before.
Call our office for a free consultation to see if a life settlement makes sense for you 1 (805) 376-8070. Or sign up for our free consultation and write us your questions, and we’ll get back to you with the answers soon.
