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Periodic Contributor

Your IRA and your Life Insurance

What do you think should be donewith a life insurance policy that you've been paying on for a long time and no longer need and your retirement account is performing well?

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Conversationalist

@RonO805672 How long is a long time? 25 years? 30 years? Longer? If the policy is a permanent life such as whole life, universal life, etc., you have probably accumulated a significant amount of cash value. If so, you should consider that policy a financial asset and use as resource for your retirement, wealth transfer, or estate, strategies. As you may not be aware, loans against cash value are tax free and may increase your retirement income without drawing down your IRA balances which are taxable. Of course, your value of the policy will decrease by the amount you borrow, but you indicated that you no longer need the policy. If the life policy is term insurance, there isn't any cash value. I would consider converting either all or some part of a term policy to permanent inasmuch as you are already insurable with that company. You can use permanent life for wealth transfer, liquidity to pay any estate taxes, long term care (hybrid type of policy), or retirement income as I indicated above. If you are under age 65, the premiums may still be competitive. It would be helpful to find an agent that is well versed in using life insurance as a wealth management strategy especially in view of Section 7702 of the U.S. Tax Code.

Regular Contributor

Another option is to investigate a life settlement where an investor buys the policy for cash.  In many cases, the price you get is significantly more than the cash value of the policy.  You can learn a lot in an hour just by googling life settlements or here is an article https://retirementincome.net/?s=life+settlements

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Periodic Contributor

The new amendment of Section 7702 of the U.S. Tax Code will take effect on January 1st. You made a lot of valuable suggestions. A IUL is considered the best policy for estate planning and retirement, that too has optimum loan features to for tax avoidance. Good Job!!

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Honored Social Butterfly

What type of life insurance policy? 

There are several different kinds, and the action might not be same for each kind.

It's Always Something . . . . Roseanna Roseannadanna
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Trusted Contributor

Consider it a legacy to your spouse or children.  If it's a whole life (or similar), you can stop paying premiums and have them paid from the annual dividend.  This will slow down the cash value increases but if you don't need it during your lifespan, that's fine.  If it's term, dump it immediately!

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