Selling your insurance policy: What you need to know

You may have heard of the term "life settlement." What it really means is a sale of a life insurance policy by a senior to a third party for less than the death benefit, but more than the cash value.

The policy remains in force, but the purchaser becomes the owner and beneficiary and keeps the policy in force, hoping to gain on the eventual death benefit

The senior gets more cash today in exchange for giving up (selling) the death benefit.

This is not usually done for "small" policies. Most "purchasers" want to work with larger policies with a death benefit of at least $ 500,000.

There are potential benefits in some situations. It is not a good deal for most situations.

Life insurance death benefits are not subject to income tax. If the family or the church or charity is the beneficiary, it can be a real help to them-no matter how much the policy benefit may be.

In some cases, a sale will provide more dollars than simply surrendering the coverage for the cash value or letting a term policy lapse (be cancelled).

Most seniors will want to maintain at least some life insurance for final expenses, debts, financial security for a surviving spouse or family member. If there are family members with special needs the death benefit can be very important. The life insurance policy death benefit can be an inheritance for your heirs or depending on what Congress does, may be a way to efficiently pay estate taxes.

The tax implications are complicated - you will need to know the total premiums you paid since the policy began. Then meet with a CPA to get an idea of what the tax might be on the sale.

So please don't sign up for a sale of your life insurance policy until you have carefully looked at all of the aspects and how it fits or does not fit to meet your goals and situation.

Do you hear "As long as I have my health, older is better than younger?"

• John Bullis is a certified public accountant, personal financial specialist and certified senior advisor serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.