i just finished paying my life insurance which was payable monthly for 15 years..can i claim it and transfer it to another life insurance company?
Total Comments: 2
Posted: Thu May 09, 2013 04:40 am Post Subject:
Term insurance policies do not have any cash value but then you may get a return of premium from them. So, if it’s placed on your policy, then you stand to get something back from your 15 year policy. The return of premium will be calculated on a graded scale. This means, the longer your policy’s term, the higher will be the percentage of your return.
You can transfer your insurance policy from the existing carrier to another. However, you'll have to pay taxes on the drawn death benefits according to the 'transfer-for-value' rule that otherwise enjoyed tax free status.
Posted: Thu May 16, 2013 02:58 pm Post Subject:
Term insurance policies
There is nothing in the OP's post to indicate that this policy was term life. It appears to me that it was a 15-pay whole life policy instead. adamsarthur is not a licensed agent, so he probably doesn't fully understand that. He certainly doesn't understand this . . .
You can transfer your insurance policy from the existing carrier to another. However, you'll have to pay taxes on the drawn death benefits according to the 'transfer-for-value' rule that otherwise enjoyed tax free status.
This is entirely incorrect. You cannot simply "transfer" life insurance from one company to another. You must always qualify for new insurance with a new company.
The proper means to move one's coverage from Company A to Company B is to effect an IRC Section 1035 Exchange. This prevents any tax liability from being incurred in the surrender of a life insurance policy, if the cash value exceeds the cost basis in the policy. To do this, one must apply for Policy B with Company B (although it could also be with Company A, as a different type of policy), and if approved, Company B will become the owner of Policy A and surrender it to Company A. The full proceeds will then be transferred to Policy B. The original policyowner will not take "constructive receipt" of the funds, so no taxable event occurs.
Transfer-for-value is entirely different. It is the IRS's way of saying, "You are attempting to earn a profit through life insurance, which violates the intent of the IRC which allows the death benefit to pass income tax-free to the beneficiary."
The "transfer-for-value" rule only applies when life insurance is sold/transferred to a party which lacks insurable interest in the insured. This can happen when a policy is involved in a viatical or other life settlement transaction. State insurance laws now require that the party selling the policy must receive at least the present value of the policy (or, in the event of a viatical settlement, the amount available through an accelerated benefit/terminal illness rider if larger), but any amount received in excess of the cost basis is taxable to the person selling their policy. The purchasing party will eventually pay income tax on the full death benefit amount, less its cost basis in the contract (the purchase amount plus continuing premiums necessary to keep the policy in force until the insured's death -- which is why most life settlements involve persons well over age 65-70).
An insurance company is not normally in the position of being the purchaser of a person's life insurance through life settlements, although a few have now begun doing so -- as a way to improve profits. And this would be a taxable event for the insurance company, too.
Posted: Thu May 09, 2013 04:40 am Post Subject:
Term insurance policies do not have any cash value but then you may get a return of premium from them. So, if it’s placed on your policy, then you stand to get something back from your 15 year policy. The return of premium will be calculated on a graded scale. This means, the longer your policy’s term, the higher will be the percentage of your return.
You can transfer your insurance policy from the existing carrier to another. However, you'll have to pay taxes on the drawn death benefits according to the 'transfer-for-value' rule that otherwise enjoyed tax free status.
Posted: Thu May 16, 2013 02:58 pm Post Subject:
Term insurance policies
There is nothing in the OP's post to indicate that this policy was term life. It appears to me that it was a 15-pay whole life policy instead. adamsarthur is not a licensed agent, so he probably doesn't fully understand that. He certainly doesn't understand this . . .
You can transfer your insurance policy from the existing carrier to another. However, you'll have to pay taxes on the drawn death benefits according to the 'transfer-for-value' rule that otherwise enjoyed tax free status.
This is entirely incorrect. You cannot simply "transfer" life insurance from one company to another. You must always qualify for new insurance with a new company.
The proper means to move one's coverage from Company A to Company B is to effect an IRC Section 1035 Exchange. This prevents any tax liability from being incurred in the surrender of a life insurance policy, if the cash value exceeds the cost basis in the policy. To do this, one must apply for Policy B with Company B (although it could also be with Company A, as a different type of policy), and if approved, Company B will become the owner of Policy A and surrender it to Company A. The full proceeds will then be transferred to Policy B. The original policyowner will not take "constructive receipt" of the funds, so no taxable event occurs.
Transfer-for-value is entirely different. It is the IRS's way of saying, "You are attempting to earn a profit through life insurance, which violates the intent of the IRC which allows the death benefit to pass income tax-free to the beneficiary."
The "transfer-for-value" rule only applies when life insurance is sold/transferred to a party which lacks insurable interest in the insured. This can happen when a policy is involved in a viatical or other life settlement transaction. State insurance laws now require that the party selling the policy must receive at least the present value of the policy (or, in the event of a viatical settlement, the amount available through an accelerated benefit/terminal illness rider if larger), but any amount received in excess of the cost basis is taxable to the person selling their policy. The purchasing party will eventually pay income tax on the full death benefit amount, less its cost basis in the contract (the purchase amount plus continuing premiums necessary to keep the policy in force until the insured's death -- which is why most life settlements involve persons well over age 65-70).
An insurance company is not normally in the position of being the purchaser of a person's life insurance through life settlements, although a few have now begun doing so -- as a way to improve profits. And this would be a taxable event for the insurance company, too.
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