money sectionmoney sectionWhole life insurance is a type of life insurance that offers a death benefit and a cash surrender value. Policy holders make premium payments for the course of their whole life--hence the name. The cash surrender value, also called a cash value, is the life insurance policy's reserve amount. The reserve is the amount of your premium payment that is set aside by the life insurance company to pay for the future death benefit. If you decide that you don't want the policy anymore, you can cash the policy in for its cash value amount. But, before you do, you…
Annuities are effective tools for accumulating a savings and then distributing that savings during your retirement. Insurance companies design these products so that the risk of running out of retirement income is spread out among all of the insurer's policyholders. But, you should understand how these products work before you buy into one.
You can transfer a life insurance contract into a new life insurance contract in a tax-free exchange called a 1035 Exchange. You can transfer an annuity into a new annuity contract using the same 1035 Exchange rules tax-free. While an annuity is a life insurance company product, it is not life insurance. Thus, you are not able to move a life insurance policy into an annuity, or vice versa, tax-free; though you can still switch it.
Annuities are insurance products that are designed and sold by life insurance companies. Annuities guarantee an income to you during your retirement. These products work by converting your savings to an income. This income can be deferred or paid as soon as you deposit your money with the insurer. Once you have purchased an annuity, however, you cannot exchange it for any other type of contract.
Life insurance is a financial product that protects your heirs from financial loss when you die. Insurance proceeds may be used to pay a mortgage, living expenses or even the estate tax bill. However, if you realize that you no longer have the need for insurance benefits, converting the cash value of the life insurance policy into an annuity will provide immediate income. Not every type of life insurance has cash value, making this an option only for universal or whole life policies.
Sometimes people find that the insurance protection from their cash value life insurance is no longer necessary. In these cases, they want to access the cash value or put it to work in a higher paying vehicle. While the insured should consider some of the benefits of the cash value policy, there is a special way to transfer funds if the situation warrants converting the cash. There are tax repercussions if you don't follow the procedure correctly.
