The life insurance industry has developed in complexity and diversity over the years. When life insurance policies were originally created, they were insurance vehicles but over time, they’ve also become investment vehicles. Ultimately, all of this leads to a complex tax structure.
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A life insurance policy is a financial asset, which needs to be reviewed on a regular basis to ensure you are getting the value you expect, in exchange for the premium dollars you pay to the life insurance company. Your policy could be affected by a change in personal preference, the issuing company’s financial condition or increased competition in the insurance industry. In some instances, replacing your pre-existing policy with another one may be more beneficial for you, but it is a very big decision to make.
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Donating a life insurance to a non-profit or charitable organization is fairly common. The donation of a life insurance policy to a charity favors both the donor and the recipient. A gift of this magnitude will typically results in an income tax deduction for the donor.
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Like any other financial investment, there are risks associated with a premium-financing arrangement. One risk alone – or in combination with another – could cause the entire program to fail. This is why it is advised to be aware of them before making a decision.
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Stranger-owned life insurance (STOLI) is exactly as it sounds – life insurance originated by a stranger. Typically, they are initiated by a third party looking to own and control a policy from the beginning.
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Insurable interest means that the person who is purchasing the policy has more to lose than to gain by the insured’s death and therefore may purchase a life insurance contract on somebody else’s life. This is intended to prevent a person purchasing a policy unknowingly on another person for purposes of wagering, planned murder, or any other reason.
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A life settlement allows a person to sell a life insurance policy and receive a cash amount higher than the cash surrender value. The policy ownership is transferred to an unrelated investor in exchange for a cash payment in excess of the policy’s cash surrender value.
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In order to receive the death benefit of a recently deceased insured, you have to file a death claim through the life insurance company. This may be a problem if you do not know which company held the insured’s life insurance policy. Here are some helpful tips to both finding a policy and keeping it safe for your beneficiaries to find.
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In the event of the insured’s death, the primary beneficiary must file a claim report in order to receive any benefits. If everything was planned accordingly, all you should need to do it contact the life insurance company and the insured’s employer, fill out the necessary paperwork, and provide the insurance company with a certified copy of the death certificate.
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The value of a life insurance policy can impact a number of situations. For example, the possibility of a taxable gain if the policy is surrendered, which is often omitted in sales presentations. The inside interest is typically income tax deferred, which is either income-tax exempt or partially income tax exempt – depending upon how the policy terminates and the circumstance surrounding termination.
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Selling one’s life insurance policy for a life settlement is a good
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