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A life insurance policy offers dual protection for the insured. Firstly, it satisfies the adverse financial consequences of death. And secondly, it can serve as a useful tax deferral tool.
However, circumstances change in life. That is a fact. What happens when circumstances change in manners that affect the need for an individual to continue holding on to their life insurance policy? |
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| For Example: |
- A policy has become too expensive to master due to lower policyholder income, or heavy interest payments on a large policy loan.
- The policyholder wishes to replace an individual policy with a less expensive joint survivorship policy.
- An executive for a corporation that was protected through key person insurance has retired.
- Another investment opportunity has arisen into which the accrued value of the life insurance policy can be reinvested to maximize asset growth.
- The policyholder wishes to donate highly appreciated assets to charity.
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Traditionally, if a policy was no longer needed, there were two options. The policy owner could either let the life insurance policy lapse or cash in the policy for its surrender value.
It is easy to see why policyholders in this position find themselves powerless and at the mercy of the insurance carriers. This is simply because the surrender value equals the amount of premiums paid in to the policy minus the cost of insurance protection during the life of the policy and a surrender charge. Also, the surrendering policyholder loses any tax benefits realized during the policy’s life and any potential death benefit associated with the policy. Moreover, this “Surrender Value” would only apply to a policy with cash value. A term policy, with no value, has no surrender value and lapsing the policy would be the only viable option.
A life settlement is a wonderful tool for retaining the value of your life insurance policy and can be utilized for practical business purposes and for estate planning.
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