If you’re thinking about purchasing life insurance, it’s important to be prepared to make the best decision. One of the first steps is working with a trusted partner such as BeamaLife who represents more than 100 different highly rated insurance companies and has industry leading knowledge on all the options that are available. It is also wise to structure your life insurance policy ownership so it has the best possible outcome, which means considering all the potential estate tax consequences. This is why working with an expert life insurance specialist that guides you through the process without any unwanted sales pressure is so effective.
Being a life insurance policy owner comes with many benefits, but there are also many responsibilities. As a policy owner you will have the right to control your policy either with outright ownership or with power over what is known as the “incidents of ownership.” With so many complex aspects of owning life insurance, having someone to explain all the finer points is extremely beneficial. A life insurance expert from BeamaLife can go over everything incorporated in policy ownership, including the following rights:
- Beneficiary naming and changing rights
- Policy surrender or cancellation rights
- Transfer ownership rights
- The right to change certain policy provisions
- The right to pledge the policy for loans or borrow against it
- The right to decide how beneficiaries receive the proceeds
There are also many different ways policies can be owned, The most common way is you own your own policy. Other way to own the policy is some legal entity owns the policy with the insurable interest. Finally, the trust ownership life irrevocable life insurance trust or ILIT.
When you talked with a life insurance expert, it is wise to discuss all the possible ramifications of policy ownership. If you own your own life insurance policy outright, the proceeds could possibly be included in your taxable estate. The same may apply if you have any incidents of ownership in the policy at the time of your death, or if you transfer policy ownership within three years of your death. This should only be a problem, however, if your total taxable estate including qualifying life insurance proceeds exceeds $1 million or whatever the applicable estate tax exclusion amount is at the time.
A life insurance specialist like any of the highly trained and knowledgeable team of professionals at BeamaLife can explain all the possibilities, including if your spouse owns the life insurance policy instead. In most states this means the proceeds from the life insurance policy won’t be included in your taxable estate, but there are special rules that apply in some states. If you sign over policy ownership to another party such as a sibling or a business associate, the proceeds will also not be includable in your taxable estate. The cash value of the policy is includable in that person’s taxable estate if they die before you, though. You can also transfer ownership of the policy if it’s already in your name, which will keep the life insurance proceeds out of your taxable estate as long as you don’t die in the next three years. Please call (866) 972-3262 now to speak with an experience life insurance specialist about your policy ownership or complete this short life insurance quote request form now.
The final option is the possibility of setting up an irrevocable life insurance trust, which will keep the proceeds of the policy out of your taxable estate. This is a highly complex option, though, so as always it’s important to have a trusted professional by your side.
