Unbury your life insurance: The 2017 Tax Act

Mar 7, 2018

If you’re still paying premiums for an old life insurance policy you started many years ago and it is now buried somewhere in your desk, the new Tax Cuts and Jobs Act of 2017 is a good reason for you to find that policy and have it reappraised. It might be worth much more than you imagine.
Did you know that you can now sell life insurance policies? Some of the reasons you might want to consider selling include:
• My business life insurance is no longer needed—“I’m selling the paper.”
• My need for personal life insurance has disappeared—“The kids are now adults.”
• I’m concerned that I might outlive my assets—“We didn’t save enough.”
• The premiums are too high or about to increase—“I’m getting older.”
• Health insurance has become a financial burden—“Our health care costs are soaring.”
• My debt service payments are too high—“We are wasting our money paying interest.”
There is now an active market for purchasing life insurance policies. The sale of a life insurance policy to a third party is generally referred to as a “Life Settlement” and means selling an existing life insurance policy to an independent third party for more than its cash surrender value, but less than its net death benefit.
The proceeds from a Life Settlement transaction can provide cash and enable you to better assign your investment to retirement savings, health insurance or some other use that has been underfunded or even totally ignored because of other financial responsibilities.
A Life Settlement will be financially more attractive when one or more of the following conditions are present:
• A medical condition that will require large future health care related costs.
• At least age 50-plus.
• A clear lack of need to continue the life insurance.
• A policy that is at least two years since issue.
• A term life insurance policy with premiums that are scheduled to increase substantially.
• A need for cash to fund a retirement account, reduce debt, pay medical costs, etc.
If you find yourself answering “yes” to any of these situations, it is appropriate to explore with a professional Life Settlements insurance broker whether selling a life insurance policy makes sense. These specialists will help you understand your alternatives and if selling your policy is in your interest; they will find the right third-party buyer for your policy.
Although a Life Settlement specialist will provide you with a list of the information needed in order to process your Life Settlement request, try to have as much of the following in front of you when you start the conversation with a Life Settlements broker:
a) The life insurance policy you are considering selling.
b) The policy’s most recent annual statement.
c) Your medical history including prescription medications.
d) Personal physician contact information.
When you’re chatting with the Life settlements broker, be sure to ask for a comparison between your current policy and the newer types of life insurance now being offered. You might decide to “trade in your existing life insurance for a new model” once you see what’s included in new life insurance policies.
Today’s life insurance policies provide benefits not just at your death, but also while you’re alive. For example, some life insurance policies pay benefits if you are confined in a nursing home and might replace and/or reduce the need for long-term care insurance. Another new life insurance benefit pays cash when a specified critical or a terminal illness occurs—which is often just the time when an insured needs extra funds for medical bills or to replace lost income.
Before the 2017 Tax Act, a seller of a life insurance policy might have been treated differently as compared to an individual who surrenders an unneeded life insurance policy back to the insurance company. The 2017 Tax Act not only eliminates all concerns about the tax formula for a Life Settlement transaction, but the Act’s specified method probably results in a lower tax liability than under prior rules. Having a knowledgeable Life Settlements broker involved in the sale of your life insurance policy will mean that come April, you will have all the data you need to complete your tax return properly and easily.
There are now three current incentives for selling and/or updating your life insurance policies:
1. Any concern about how the transaction will be taxed has been eliminated.
2. The increased estate tax exemption in the Tax Act might have made your life insurance unnecessary.
3. Your policy might be out-of-date and lacking the living benefits now included in life insurance policies.
Why continue to pay life insurance premiums if you don’t need the life insurance? By reappraising your current life insurance policies, you might wind up with a new life insurance policy that automatically includes living as well as death benefits. And, if you’ve elected a Life Settlement, it will provide cash to use for other purposes.

Jeff Adler is the Managing Member of Executive Capital Resources, L.L.C. 847-673-2677 – jeffrey@ecrllc.com.

Jay Jaffe is an actuary and President of Actuarial Enterprises, Ltd. 312-397-0099 --- jay@actentltd.com.