Excerpt from: Chicago Tribune (click for full article)
If your loved ones don't need the death benefit from your life insurance policy, that policy may be more useful to you now than later. Through what's known as a 1035 exchange, you can convert it into an income annuity without paying taxes on your gains. You'll no longer have to pay premiums, and you'll lock in income for the rest of your life (or a specific number of years). The conversion is tax-free, but you'll pay taxes on a portion of each payout, based on the proportion of your basis to your gains.
To compare payouts, go to http://www.immediateannuities.com. A financial planner with experience in the insurance industry can also help you select the best payout.
You can also exchange a life insurance policy for long-term-care insurance tax-free. And because long-term-care benefits aren't taxable, you'll never pay taxes on your gains.
Unfortunately, few long-term-care insurers allow you to pay for your coverage with a lump sum. That means you must arrange a partial exchange every year to pay the annual insurance premiums, and only a handful of long-term-care insurers -- including Genworth and Northwestern Mutual -- have systems in place to support partial exchanges.
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