The Changing Role of a Life Insurance Policy
From Financial Security to Personal Asset

Most seniors who own a life insurance policy likely purchased that policy years ago to provide financial protection for their families. However, as children become adults, the need for such protection and the desire to continue paying premiums changes. The life insurance policy is no longer a vehicle for financial security.  It is a personal asset in the retirement portfolio. And like any other asset, an evaluation is undertaken to determine if keeping or selling it is in the owner’s best interest.

            The following questions should be asked:

Is the life insurance policy needed for estate planning purposes?

Some owners acquired life insurance policies so their heirs could receive tax-free income at the time of the insured’s passing, helping them pay a large estate tax bill when the assets are inherited. However, The Tax Cuts and Jobs Act of 2017 contained some important changes to the federal estate tax calculation, most notably doubling the estate tax exemption to $11.2 million per individual and $22.4 million, with portability, for a married couple.   With the change, only approximately 1,800 estates each year will be subject to federal estate taxes.  Therefore, it is no longer a consideration for the overwhelming majority of Americans.

Is the cost to maintain the life insurance policy worth the benefit?

Many seniors discover that the projected costs to maintain an insurance policy are increasing more than they anticipated.  They are often living longer than expected – which is a great development – but their increasing age can drive premiums to excessive levels.  At Welcome Funds, we evaluate life insurance policies where the family was simply not prepared to fund the premiums for more than 20 years. Maintaining the policy is burdensome.

Are the proceeds from the life insurance policy earmarked toward repayment of any debts or unpaid expenses?

Many people purchase life insurance to provide an income stream to finance anticipated future obligations. Examples include funding educational expenses for children or grandchildren, paying for funeral expenses, or leaving behind a charitable legacy.  However, many seniors now in their golden years have had time and opportunity to address each of those anticipated financial needs in other ways, so the life insurance asset is no longer playing this role in their portfolios.

The answers to the above questions help determine whether a life insurance policy is still performing a strategic and necessary role.  It begins by viewing a life insurance policy as just another asset inside a retirement portfolio instead of an umbrella of financial protection. If the policy is no longer serving a portfolio’s objectives, then it may be time to liquidate the asset.

One such liquidation exit strategy, for qualified candidates, is selling the policy as a life settlement to an institutional investor within the well-regulated secondary market for life insurance.  A life settlement generates cash for the policy owner, which can be invested into another asset or allocated for other retirement planning purposes while eliminating the burden of paying premium payments, which is assumed by the investor. 

For more information, please call 877.227.4484 or visit www.welcomefunds.com.