New Plan for Unneeded Life Insurance

Don’t dispose of an unneeded permanent life insurance policy just yet. In 2010 there will be a new way to take advantage of these policies that you might find more profitable.

A permanent life insurance policy, such as whole life or universal life, might be surplus when the reason for buying it changed. Perhaps you no longer anticipate estate tax or liquidity needs, no longer need to provide for a spouse, or simply were talked into a permanent policy you really don’t need. Often, premiums no longer need to be paid on these policies, because the cash value increased enough to pay the premiums.

If you no longer need the policy, you might consider cashing it in and taking the cash value. You might also be able to sell the policy.

Another option will be available beginning in 2010. You will be able to exchange the unneeded permanent life policy for a long-term care policy tax free. Make the exchange in 2009, and you will be treated as cashing in the life policy and buying the LTC policy. Cashing in the life policy is a taxable event. You include the cash value in gross income. In 2010 and later, the exchange is tax free.

If you have permanent life insurance you don’t need but have a need for LTC, consider exchanging the life policy for an LTC policy in 2010. RW March 2009.