Quote:
Originally Posted by FredJacobs
I used to teach life insurance law to insurance agents. Life insurance policies are payable ONLY to the beneficiary. An "irrevocable beneficiary" cannot be changed by the owner of the policy without the approval and knowledge of the beneficiary.
Life insurance proceeds are free of income tax and cannot be attached by any of the decedent's creditors. However, they can be claimed by the beneficiary's creditors.
Things to look for and consider -
A. What kind if policy is this - Whole Life, Universal or Term?
B. If it is Whole Life or Universal, is there any cash value and is the cash value sufficient to pay the premiums?
C. If it is Term, the owner of the policy could stop making premium payments because it is forever increasing and the policy could be cancelled. Also, depending on when the policy was issued and in which state, the policy may expire at age 80, 85 or 99.
2. The life expectancy of a healthy 79 year old male is about 13 years. Should the owner live that long, the car will be 16 years old - if he still owns it. Will you get what ever car he owns at the time?
3. This is like buying a 13 year non-cancellable, no early withdrawal CD. Investing $20,000 and waiting 13 years for payout of $40,000 is an annual rate of return of 5.2%. Not too bad a rate of return. If he lives longer, the rate goes down.
4. Mr. Dalton may be better served if he sells his policy for a cash settlement.
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I don't think the second paragraph of your post is correct, in this case, regarding income tax. Here is what the IRS says about income tax on life insurance proceeds.
"If the policy was transferred to you for cash or other valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts."