The very first registered life insurance policy was issued in Europe in 1583 and the first life insurance company in the United States was established in 1759. Today, the United States has over 150 million life policies in place, providing policyholders and their beneficiaries with more than $ 12 trillion in death benefits. In 1911, the US Supreme Court ruled that life insurance policies were assets and that the owner with a policy had the same personal property rights as any other asset, such as a house or stock. The holder of a policy has the right to name and change the beneficiaries, has the right to borrow money from the policy or use it as collateral, and also has the right to sell the policy to a new owner while it is alive. Secondary Market “Life Settlement Value.
Life insurance is one of the cheapest and most valuable assets a person can ever own. But one of the great secrets of the insurance industry is that the majority of people who buy life insurance don’t keep it until they pay out a death benefit. Industry reports show that up to 90% of the life insurance policies people buy will expire or be abandoned. The shame about this fact is that so few people who buy life insurance know that it will have value for the rest of their lives – and there are alternatives to terminating or relinquishing a policy if the owner chooses not to keep it .
Here are 5 ways life insurance creates value:
- Death benefit– The first and foremost reason someone would buy life insurance is to financially protect their family (and / or business interests) from premature death. Life insurance is a contract that guarantees the insurance company that the lump sum acquired in the event of death will be paid out against payment of the premium. The younger and healthier a person is when they take out the policy, the more they can get for lower premiums. If the policyholder dies, the lump sum death benefit is paid out to the named beneficiaries in full, tax-free.
- Insider building of value and tax benefits A life-life or universal life policy will create a cash value within the policy that accumulates and grows tax-free. In addition to the tax-free payment of the lump sum death benefit, life insurance can offer a number of tax advantages, such as: B. a change from 1035 to an annuity or qualified long-term care insurance, tax-free loans and the use of the cash value. Life insurance can be used as another retirement plan to build up tax-free value that the owner can access or transfer that value to the estate tax-free.
- Estate planning and asset transfer– Life insurance is a vehicle for asset accumulation that can be transferred tax-free to the beneficiaries. Based on an individual’s measurable worth and insurable interests, insurance policies can be issued that provide millions of dollars in death benefits and taxpayers’ money. As the potential for an increase in top tax rates on capital gains and the abolition of the step-up-in basis is emerging, the impact on the amount of an estate or the shares that can be passed on to heirs could have an effective tax effect of 61% rise. Taking out life insurance to compensate for these effects is an important strategy for preserving and transferring wealth due to the tax-free increase in value and the payment of the lump sum death benefit to an estate or heir. Using an irrevocable life insurance trust (ILIT) is another strategy to maximize the value of life insurance in these circumstances.
- Tax-free exchange for guaranteed income and LTC– The cash value of a life insurance policy can be converted into a new policy, a life annuity to pay out a lifelong guaranteed income or tax-free long-term care insurance through a 1035 exchange. With the Pension Insurance Act of 2006, a provision was created that enables the insurance value to be exchanged for a qualified pension contract for long-term care, which is paid tax-free to all qualified care aids and services.
- Life Settlement Value– Since a life insurance policy is legally recognized as an asset, the policyholder can sell his policy as an alternative to forfeiture or repurchase through a life settlement. Life Settlements are a unique, tax-privileged financial instrument that pays the policyholder a higher value the older and / or sicker the policyholder is, and relieves him of future premium obligations. In 2020, US $ 4.6 billion in life settlements were settled as more people become aware of this option for policyholders. People use Life Settlements to get cash to spend as they please, tax-free funds to pay for care and medical expenses, or to maintain a reduced death benefit without paying additional premiums.
Life insurance is one of the most widely used financial instruments in the world and one of the most misunderstood. Far too few people understand the value that a policy can offer them in addition to a death benefit. Life insurance can help people with tax breaks, estate planning, wealth transfer, and the creation of guaranteed lifelong income, and can be exchanged or settled to cover the expensive costs of medical bills and long-term care.
Chris Orestis, President of Retirement Genius, is a 25-year veteran in the insurance and long-term care industries and a nationally recognized senior care attorney. He is the author of three books, numerous white papers, and hundreds of articles, and speaks frequently across the country about helping seniors retire like a genius.
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