Have Clients Who Think They No Longer Need Their Life Insurance?

Have Them Think Again.

Within your book of business, it could be that you have clients who, for any number of reasons, possess life insurance coverage that they feel is no longer needed. Yet, even if the initial reason for purchasing their current coverage is not valid anymore, there can still be a number of very good reasons for them to either keep their coverage and use it for different financial goals, or even to exchange their present policy in order to better fit their current needs…one of which could be to help a child or a grandchild with funding their future college education costs.

This is particularly the case if the client owns a permanent life insurance policy that has built up some cash value in it, as it could be exchanged for a different policy via a transaction that is known as a 1035 exchange.

The Benefits of a 1035 Exchange

Based on Internal Revenue Service (IRS) rules, a life insurance policy holder is allowed to exchange their coverage for a new life insurance policy (that insures the same individual) without the need to pay taxes on the investment gains that have been earned in the original contract.

For policy holders who have built up a significant amount of cash in their plan, this can be highly advantageous, as just simply surrendering the policy is considered to be a taxable event in which the gain in the cash component is subject to income taxation.

In addition, life insurance policy holders may also be able to exchange two or more of their old contracts for one single new one (provided that the policy will be owned by the same individual or entity).

Likewise, an individual may also be able to choose a partial 1035 exchange transaction, meaning that they could move just a portion of their original policy’s cash value over into a new policy that more closely fits their current coverage and cash-related needs.


Moving Forward in Compliance with a 1035 Exchange

There are some important factors to keep in mind, though, if you have clients who pursue this route. For instance, according to the United States tax code, the old insurance policy must be exchanged for a new policy.

This means that a policy holder can’t just simply cash out of their current policy, receive a check, and then use that money to purchase new life insurance coverage – even if they apply all of the proceeds towards the new plan. Rather, it must be exchanged directly from one policy to the other.

In addition, while it is allowable to exchange one life insurance policy for another, as well as to exchange a life insurance policy for an annuity, it is not allowable to exchange an annuity for a life insurance policy.


Benefiting Your Clients and Yourself with Custom Tailored Life Insurance Options

Although the 1035 exchange has been available to life insurance (and annuity) policy holders for many years, there are a number of people who are not aware that this type of transaction can be used, so in turn, they end up selling themselves short by cashing out of an unneeded plan and in turn, taking the tax consequences.

You can join thousands of other agents, though, who are already showing their clients unique strategies regarding how to help a loved one with funding their education using life insurance. Showing your clients how to use 1035 exchanges, as well as other life insurance related alternatives, can open up a wide range of options for ensuring that money will be there for its intended need.

If you are interested in learning more about these beneficial concepts – and how you can earn thousands of additional commission dollars every month while doing so – give us a call, toll-free, at 1-800-643-6143 now.

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Brian J. Kay, Executive Director, Leads4Insurance
921 Port Washington Blvd., Suite # 3 Port Washington, NY 11050
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