To the vast majority of people, the term “life settlement” is an unfamiliar one. Many have never even heard of it, let alone considered the concept of selling a life insurance policy for cash, or the benefits of doing so. Selling a life insurance policy can allow a policyholder to reclaim equity and provide the funding that will allow their golden years to be comfortable. This amount can sometimes be four or more times greater than if they had surrendered their policy or let it lapse altogether. However, today most policies still lapse or are cancelled without the owner benefiting from them at all. For anyone who is unfamiliar with the way life settlements work, one of the first questions they have is why someone would want to consider this option in the first place.
Here are five common reasons why an individual may consider selling their life insurance policy:
- No More Dependents
- More Cushion for Retirement
- High Insurance Premiums
- Terminal Illness
- Term Policy Approaching Expiration
Learning more about the way that a life settlement could benefit you if you find yourself facing any of these situations could help you decide if this is the best choice for you.
Overview
Put simply, a life settlement is a financial tool that converts an existing life insurance policy into cash by means of a sale. Once someone sells their life insurance policy, the buyer will continue paying the policy’s premium to the insurance company and receive the death benefit when the insured individual dies.
Various situations could arise in which a policyholder may decide that their life insurance policy is either unwanted or unneeded, but still be saddled with the burden of paying the premiums each month. Rather than allowing the policy to lapse and thereby forfeiting its value altogether, a life settlement affords that individual the ability to sell it for an amount more than the policy’s cash surrender, but less than its death benefit.
Why Sell Your Policy? Five Common Reasons Why
- No More Dependents
If you no longer have any dependents who rely on your income, a life settlement could be a useful tool. This could be because all of your children are financially independent, you are divorced from your spouse, or are no longer in business with a partner who would need the death benefit to continue running the business in the event of your death. If there is simply no one who would have anything to gain from the death benefit, it may be in your best interest to sell the policy.
- More Cushion for Retirement
The amount of money that a comfortable retirement requires is consistently underestimated. For a variety of reasons, many are unable to save up enough to easily make the transition to retired living. The proceeds from a life settlement can be structured in such a way that you receive a payment each month instead of a single lump sum up front. If you are living on a fixed income, the additional boost of a portion of your settlement payout each month could make a huge difference when trying to make ends meet.
- High Insurance Premiums
This is one of the main reasons that people allow their insurance policies to lapse. And what a pity, when they could have at least seen some returns on their investment by opting for a life settlement! Especially if you find yourself over-insured—maybe because of having more than one policy on yourself, or both you and your spouse have high dollar policies—you may find paying those high insurance premiums to be unnecessary. And if you can no longer afford the premiums, selling your policy is a great way to get rid of them entirely, while also gaining more financial freedom.
It is also worth noting that due to the economic strain of the COVID-19 pandemic, many seniors are finding themselves unable to afford their insurance premiums as they need the monetary resources they do have to care for other essential needs. It is more important than ever that these individuals understand that they have viable options for regaining their financial stability without allowing their insurance policies to lapse and forfeiting their valuable equity.
- Terminal Illness
Medical care costs associated with treating a terminal illness can be astronomical, and an extreme financial burden for the ill person and their loved ones. Someone with a terminal condition may consider a life settlement as a means of supporting themself and/or their family when they are no longer able to work consistently. If hospice care or a long-term care facility is required at any point, a life settlement could supply some or all of the needed funding.
- Term Policy Approaching Expiration
If your term life policy is approaching the end of its conversion option, then some decisions will need to be made. Typically, at least 6 months ahead of time, the policyholder will need to decide if they are just going to convert the policy to a permanent insurance, or if they will take another course of action. This is the perfect time to consider a life settlement.
Summary
There are many valid reasons why someone would consider selling their life insurance policy. General research shows evidence that increased awareness among American seniors about the options available to them is required so that they can be armed with the information they need to obtain the optimal amount of value from their life insurance policies. Life settlements are a powerful financial tool that allows them to glean the benefits of their consistent contributions to their life insurance policies over the years.
To find out if a life settlement is the best option for you, it is important to assess your current circumstances as well as your goals for the future before making this decision. ALIR Settlements is here to answer any questions that you may have and to help you evaluate your situation so that you can decide whether a life settlement is the best tool for you to use to make your golden years the best chapter of your life.
Sources: