Why Should Someone Sell a Life Insurance Policy?

June is life settlement awareness month and represents a good opportunity to answer the question of why someone would want to sell a life insurance policy.

A life insurance contract is an agreement between the insurance carrier and the owner/insured to provide a benefit upon the death of the insured to the named beneficiary. In return, the owner/insured must pay premium to the carrier in an amount sufficient to keep the policy in force on each contract anniversary date. Does it ever make sense to sell a policy and deprive the beneficiaries from realizing the full death benefit?

To properly answer the question – you must ask yourself another question – for what reason did I purchase the life insurance policy in the first place and is that reason still valid? In other words, do I still need the policy?

For example, suppose you purchased the policy for your spouse because she was not entitled to a portion of your income if you died (life only annuity). This was the sole reason for purchasing the policy. Let’s say that some years after you purchased the annuity (and the life insurance policy) your spouse dies or you divorce. The reason you purchased the policy no longer exists and you no longer want to keep paying a premium. You now own an obsolete asset that you might be able to sell in the secondary market or – at the very least – surrender to the carrier. A policy sale will often generate more cash than a policy surrender and could provide certain tax advantages as well. This is an example of disposing of an asset for the highest possible return on investment.

Let’s take a look at this from another perspective. If you own an asset of any kind and you no longer need it or want it – what are you likely to do? You likely will try to get rid of it. We are not talking about a piece of artwork or furniture you store in your garage or attic. Most assets that outlive their usefulness are disposed of. The essence of this discussion is the method of disposal. Like paper or plastic - it’s sale or surrender.

Another reason might be that you purchased the policy earlier in life to create an estate for your family if you died prematurely. You did not die early and in fact, were able to build an estate that would provide sufficient income to you and your spouse. Again, you have a policy for which the original intent of purchase no longer exists. Sale or surrender?

Let’s say you still need insurance coverage but the policy you own is not as cost effective as a newer policy. One strategy is to do a 1035 exchange to the new policy where you transfer any equity in the old policy and defer any tax until the new policy is disposed of. The key word here is equity. Exchange equity is cash surrender value not fair market equity. Fair market equity may be sufficient to make it more profitable to sell rather than exchange the unwanted policy.

Let’s take a look at other reasons involving a change in family circumstances that would make good sense to sell a policy:

• Change in estate valuation/estate tax law eliminating the need for insurance
• Long-Term Care expenses looming on the horizon
• The policy premiums have become a financial burden
• Policy beneficiaries are all financially independent
• Alternative uses for the policy proceeds and annual premiums such as gifts, other investments, paying debt, creating liquidity
• Replacing property donated to charity
• Creating a larger tax deduction for a charitable donation of a life policy
• You want to enjoy a portion of the death benefit while you are still living

The keys to making the decision as to whether to sell a policy or not is to (1) determine if the reason for purchase is still valid and (2) determine if the policy you own is the one you should own going forward by analyzing the current policy vs. market comparisons. A life insurance policy – like any other asset – requires monitor and evaluation on a regular basis.

Located in Manhattan Beach, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361)