Transferring your life insurance to your child
If you have a large estate, your beneficiaries will likely pay high estate taxes upon your death. If you have a life insurance policy, its value is considered part of your estate. This is why some people consider transferring their life insurance policies to their children.
Changing Life Insurance Ownership
Transferring ownership of a life insurance policy to your child is simple. You need to complete a change-of-ownership form, which can be provided by your insurance company. When you change ownership, the policy still covers you, but the new owner now holds the policy.
Limitations to transferring life insurance
For the purposes of calculating the total value of an estate, the IRS has a three-year rule. If the transfer of ownership took place within three years preceding death of the original owner, the transfer is void. The proceeds from the insurance policy are counted into the estate.
Life insurance policies with high values may also be subject to gift taxes when transferred. It’s best to consult a financial and tax advisor before making any transfers.
And despite the ease of transferring the policy ownership, once it is transferred, you cannot transfer it back. Before making such a permanent decision, parents should consult financial advisors and talk honestly with their children about whether it is the right thing to do.
Want to know more about life insurance?
If you don’t already have a life insurance policy, HealthMarkets can help. Licensed insurance agents can help you find the plan for your needs, and our services come at no cost to you. Call a licensed insurance agent at (800) 827-9990 to get started.