Why would one opt to sell a life insurance policy?
You might be tired of paying for a policy you no longer need. Policies are sold for many reasons. Often, the original purpose or need for the policy has changed or has diminished entirely.
What is the literal meaning of the sale of my Policy?
A life insurance policy is considered a personal property, like house, car or stocks & bonds. Like these assets, this can also be bought and sold. In this sale, you transfer all rights and obligations of your life insurance policy to a third party for a percentage of the face value of that policy. The full value of the policy will eventually be paid to the third party.
What conditions lead to this decision for any individual?
Primarily, people take this decision due to the changing circumstances, like:
- Retirement
- Affordability of Premiums
- Change in Estate Size
- Death of the Beneficiary
- Sale of a business or Financial Planning Changes
There might be other issues involved like:
- Insured wishes to distribute funds while living
- Desire to invest funds
- Policy has not met original illustrated values
- Charitable Foundation holdings policies
- Poor performance of the defined benefit plan
Changes In Estate And Business Planning Needs
Estate Planning
To avoid the 1035 Exchange Rule, Survivorship Policy is preferred over an individual's insurance policy.
There is a reduction in estate size due to loss of net worth or completion of estate planning techniques and less insurance is required to fund projected estate tax liability. A policy needs to be removed from an estate. The three-year-rule can be avoided by using the proceeds to repurchase a new policy outside the estate.
Business Changes
- Key person policy is no longer needed due to retirement or change in business structure.
- Buy/Sell funding is no longer required.
- Policy is entangled in litigation.
- Business owns poorly performing policies.
- Bankruptcy causes liquidation of assets.
- Deferred compensation programs have changed.
Personal Planning
- Policy does not meet the original illustrated values.
- Premiums have to be increased or policy will lapse.
- For current distribution of funds, the sale of a policy really helps.
- Divorce changes desired need for life insurance.
- Individual's financial situation makes premium payments unaffordable.
- Funds can be used to clear the loans and outstanding debt.
Charitable Organization
- Charity is paying premiums on gifted policies.
- Before a policy is gifted to a charity for its value, it can be sold for a possible higher donation and can be written-off for the donor.
Policies Considered
For minimum face amount of $100,000, the policies to choose from are :
- Term Life
- Variable Life
- Whole Life
- Survivorship Life
- Universal Life
- Adjustable Life
- Group
- Joint First to Die
With a whole lot of segregated and specialized choices available, one does not need to be locked into an insurance program that does not meet their lifestyle or present needs.