A life insurance policy transfer to your adult children can help sustain your investment should your financial situation change…
Twenty years ago, Donna bought a life insurance policy. When she chose the plan, she predicted as best she could the premium she’d be able to afford.
But in recent years, financial challenges have made it difficult for her to pay her life insurance premium. And it’s due again soon.
She is close to her son, Joshua. He’s married with two young children. Donna is comfortable transferring policy ownership to him, but she worries about burdening him with the premium payments. She knows she needs to speak to him soon about the transfer.
As with Donna, life can throw some financial curve balls, making it difficult to pay a premium. Transferring your policy to an adult child can offer financial relief — and keep the policy current.
It’s not always an easy topic to discuss, so here are some tips to help you begin the conversation.
Start with “why”
Talking about finances and death with loved ones can be challenging. So, when it comes to talking to your adult children about taking over your policy, start with “why” — why you chose this policy, why you want to transfer it to them, why it’s important to keep it going, and why their investment will pay off when they need it most.
Describe the benefits of a life insurance transfer
Show them what they’ll receive when the policy matures. And discuss your vision for how that money will help them and their family. Include in the conversation how the benefits of the policy will offset any end-of-life expenses.
Outline the tax details
Another thing to consider when talking to your kids about transferring your policy is taxes. For example, the IRS will see the transfer (to your beneficiary) as a gift. And, as of 2018, the annual gift amount you can exclude from your federal taxes is $15,000.
So, let’s say, when you make the policy transfer, its value is $30,000. $15,000 will be excluded from taxes as the gift amount. The remaining $15,000 will be subject to gift tax. However, the gift tax will be due only when you pass.
Tap into your resources
You don’t have to do this alone. For example, your insurance expert, who knows your policy inside and out, is a valuable resource for getting started. They can guide you — from helping you decide if the person you choose to take over the policy is a good fit, to explaining the “nuts and bolts” of the transfer.
Take action and rest easy
Some conversations are tough to start — like the one Donna will soon have with Joshua. But when it comes to asking your adult children to take over your life insurance policy, keep in mind they’ll be happy they did later on.
Transferring your life insurance policy is a big decision. Our Retirement Specialist, Aaron, can walk you through the necessary steps. He can also reach out to your loved ones to explain the transfer process.
Reserve a spot on his calendar for a chat!