Not many people know this, but a life settlement is literally an investment that is supported by a federal law. The Supreme Court case Grigsby v. Russell gives Americans the right to treat a life insurance policy as any other form of property, including the rights to sell it.
The main difference between selling a life insurance policy and other investments is that not much precedence has been set for life settlements… meaning that the court system has not developed many laws regarding the sale of life insurance policies or the taxing of the proceeds. Now is a great time to consider selling your life insurance policy as a life settlement.
The “right to sell” life insurance policies was made in Grigsby v. Russell, under the notion that a life insurance policy has the same character of any other property, therefore it should be treated as such. Below are the rights that were defined in the court case:
- Choose/Change the policy beneficiary
- Use the policy as collateral for a loan
- Borrow against the policy
- Sell or transfer the policy to another party
As always, the laws governing the sale and taxation of life insurance policies can and will change over the years, given the state of the economy, now is a great time to consider getting a life settlement… after all, it’s your right.
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They are an unavoidable part of life, regardless of whether it is your first day working or well after retirement, taxes will always exist so long as you earn some type of income. When considering selling a life insurance policy as a life settlement, many seniors are interested in knowing how the proceeds will be taxed, and whether it is worth your effort to sell the life insurance policy.
Although your exact situation may be similar, it is always recommended that you speak to your accountant or tax advisor to make sure that there are no circumstances which may make your situation a bit different. However, there are few general bits of information regarding the taxing of life settlement proceeds that apply to most situations:
A life settlement sale is usually tax free up to the amount of money invested via premiums for the policy. The money up to the surrender value is considered normal income, while anything over is taxed at a capital gains rate.
Depending on your situation, a life settlement may be a wise investment, and the taxable amount may be small enough to still make it a good deal.
