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There's Gold In Them Thar…..Life Insurance Policies?

One of our Senior Savvy brethren approached us with a problem that was solved for him and his family quite nicely, so we thought we'd pass the information on, as you might be interested. Jimmy Smith and his wife were enjoying a good retirement and were working with their advisors on some Estate Planning. It seemed that the Smith's had too much money in their estate (shouldn't we all) and when they passed on, the government was going to get a lot of it (more than 50%). Rather than give all that money away in taxes, the Smith's felt their church did a lot of good things in the community and they had been a member of this congregation for years and it was time to give back.

Mr. & Mrs. Smith were planning on gifting a life insurance policy with a face value (death benefit) of $750,000 to their church. The church would take on the premium obligation, but receive the death benefit upon the man's passing. Mr. Smith would be able to write-off his current CSV (cash surrender value) of $142,189 and he thought that was a pretty good deal.

We told him about a new "kid on the block" called a life settlement and how this might be a good alternative. After we got over the fears that this might be "some kind of viatical or something", Mr. & Mrs. Smith realized this was just a good business proposition and they and the church were going to do much better with a LIFE Settlement than the gifting of their life insurance policy to the church.

LIFE SETTLEMENTS, plain and simple are the purchases of life insurance policies by reputable companies so the new owners can enjoy a profit on the inevitable death benefit. The idea is that, for various reasons, the current owners of the policies would rather enjoy the cash now, than have some beneficiary receive the tax-free income. Some reasons for selling life insurance policies are relatively simple, such as the beneficiary dies or no longer needs the money. Others can be more complex which we can address in another article, but for now let's look at some examples of how this LIFE SETTLEMENT deal works.

Upon review of the Mr. Smith's life insurance policy, an offer of $225,000 was made and accepted. The charity received the cash immediately and was not burdened with any future premium obligations. The insured was able to write off an additional $82,811 for his gift. The summary of it all is that the life insurance companies will not give back much at all in the way of cash surrender values (CSV) as will a company that is in the life settlement business.

Next, there was another 75-year-old, besides Jimmy with a policy worth $250,000. He wanted to start gifting to his children and grandchildren while he could see them enjoy the money and didn't want to be burdened with future premiums. The trade-off of a smaller amount of cash today vs. that of his death benefit several years down the road was reasonable to this client. He had his policy appraised and was offered $79,000.

Here are a few more examples of how these life settlement arrangements can give more income than the (CSV) cash surrender values an insurance company might offer.

Information obtained from industry sources

Here are some additional reasons folks might want to sell their life insurance policies:

Business is sold or dissolved.

Policyholder has outlived the beneficiaries.

Medical needs result in a need for liquidity.

Investment alternative, which could generate a higher return.

Charitable giving donor is able to receive a larger tax deduction.

If you would like more information on this topic, fill in the form below and click submit and we will get right back to you.

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