Like many of today’s seniors, you may be struggling to pay your bills with just a meager fixed income despite having worked hard all your life. What you may not realize is that you may have a hidden asset that can help. That life insurance policy you have been paying premiums on for years, even decades, may be more valuable to you than you realize. The Indianapolis estate planning attorneys at Frank & Kraft explain the hidden value in your life insurance.
Do You Own a Life Insurance Policy?
People often purchase a life insurance policy early on in life, before they have amassed much in the way of assets, as a way to ensure that their loved ones will be financially secure if something happens to them. If that describes you, then you have probably been paying premiums on that policy for decades without ever expecting to personally benefit from the policy. While that policy was undoubtedly necessary many years ago, it may not be needed now. Your children are likely adults now and are no longer dependent on you for their financial support. You, on the other hand, could use an infusion of cash to live a more comfortable life during your retirement years. That same life insurance policy may be able to provide that cash in the form of a “senior life settlement.”
What Is a Senior Life Settlement?
A senior life settlement is not the same as cashing in your life insurance policy for the “cash value” of the policy. Instead, a senior life settlement allows you to sell an existing life insurance policy to a third party (a company other than the company from which you purchased the policy) for more than the policy’s cash surrender value, but less than the net death benefit. For example, imagine that you have a life insurance policy with a death benefit of $500,000 and a current cash surrender value of $100,000. If you opted for a life settlement you would sell that policy to a company for an amount that is more than $100,000 but less than $500,000. The third-party would then take over the premium payments on the policy and would receive the death benefit upon your death. Unlike cashing in a life insurance policy, with a senior life settlement, the policy remains in effect and you remain the insured.
How Do I Know If a Senior Life Settlement Is Right for Me?
Always consult with your financial advisor and your estate planning attorney before deciding to move forward with a senior life settlement. It can be an excellent resource when in a financial emergency or it can provide a nice financial cushion during your retirement years. Before you accept a settlement, however, you should consider the following:
- Future insurance needs — if your children are grown and your spouse is taken care of through other means, you probably no longer need life insurance. If, however, you are still concerned about providing for someone and you don’t have other assets to leave behind, you may want to hold onto the policy you have.
- Possible tax consequences – if you receive a large lump sum settlement it will likely come with some significant tax consequences. One option to discuss with your accountant is a 1035 exchange. As the name implies, it effectively allows you to exchange one asset for another similar one without paying capital gains taxes.
- Eligibility for assistance programs – if you are currently receiving state and/or federal assistance, such as SNAP or Medicaid, you could lose your eligibility for that assistance if you receive a large sum of money.
Contact Indianapolis Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding a senior life settlement, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.