Insurance policies with rising or recurring premiums can often cause problems for their owners, especially when their financial needs or obligations change.
Is it a better investment to continue paying for a policy you’ve already paid on in the hope of making a profit at maturity, or to recoup some of the investment by trading the policy for its cash surrender value?
Corporate policyholders often face additional dilemmas when dealing with outgoing executives with key or split dollar policies, or insurance purchased as part of a buy-sell agreement. Another option is to sell the policy for cash. With a life agreement, the insured gets an amount much greater than the cash surrender value in exchange for ownership of the policy, increasing immediate income for companies that have unprofitable policies.
You can also sell term insurance policies. Life settlement transactions involving buy-sell or key-man policies can provide companies with increased cash flow to resolve immediate financial problems, while transactions related to split dollar policies generally involve investment planning issues. retirement and charitable giving.
An individual can also sell his policy for cash. In a recent survey of advisors, nearly half of those surveyed had clients who had waived a life insurance policy, many of whom may have qualified for a life settlement transaction and subsequent lump sum cash payment. .
A primary reason an accountant must be well versed in the life settlement field is the importance of his fiduciary responsibility to clients. When providing financial advice and strategic information, being able to identify a way to eliminate an asset that burdens the client with unnecessary expenses can go a long way. Offering more options can satisfy more customers.
The life settlement process takes about a month, is confidential, and the proceeds can be used for anything.
A recent example of a settlement is that of a 66-year-old man with a $ 2 million universal life policy with $ 4,200 of cash surrender value. The owner, who could no longer pay the increasing premiums, received $ 194,992 for the policy.
If you still need life insurance, but do not want to continue with the existing policy, the insurance trade-in should be compared to the life settlement offer for the best results. That involves exchanging insurance, eliminating taxable “paper” gain or credit against a new base policy on an old one.
Alternatives to the above are to keep unwanted insurance, cancel and pay taxes, or cancel insurance and lose credit for the taxable loss.
The information provided in this document is not intended to be legal, accounting, financial or other advice for any specific individual or other entity. You should contact a suitable professional for such advice.
