As COVID-19 continues to tighten its grip on the world, many people are feeling the pain in their bank accounts. Among the hardest hit are millions of retired seniors whose retirement portfolios have taken a huge hit due to the crisis. For those seniors who had been counting on withdrawals from these portfolios to support them financially, it is especially important to find new ways to produce the cash flow that they need not only to survive, but to thrive during their golden years.
Thankfully, more people are discovering the often-untapped potential of their life insurance policies, and seeing them as valuable assets that can help them now instead of later. Most individuals purchase life insurance to provide some financial resources for their loved ones who would need it for funeral costs or other death-related expenses in the event of their untimely demise. But the vast majority have never considered the possibility that as long as they have an eligible policy such as a cash value life insurance policy, these can also provide financial relief during difficult times while they are still living.
What is Cash Value Life Insurance?
Cash value life insurance is a type of permanent life insurance—which does not expire—that has a cash value savings component. This component enables the policyholder to use the funds for a greater variety of purposes should they need to. If you have this type of insurance, there are a number of options that you can take advantage of if you find yourself in need of extra cash during the economic crisis.
1. Make Partial Withdrawals from Your Cash Value Life Insurance
All of the funds in a permanent life insurance policy belong to the policyholder, which allows them to withdraw the cash when they want it. Often times it’s as simple as notifying your insurance company, telling them the amount that you are looking to withdraw, and they will take care of depositing it to your account. You may choose to repay the amount that you withdrew, thereby restoring the full amount of the death benefit. It is important to keep in mind that if you access those funds early and choose not to repay them, you will reduce the death benefit.
2. Borrow a Loan Against Your Cash Value Life Insurance
There is no shortage of challenges that could arise in life that would make it necessary to take out a loan. If you were to find yourself in one of these difficult situations, you could borrow against the cash value of your life insurance policy. However, you would have to repay the amount of the loan plus interest in order to maintain the full death benefit.
3. Surrender Your Cash Value Life Insurance Policy for Cash
Complete acquiescence of your policy will terminate the coverage and get you the full cash value of the policy, minus any applicable surrender charge which will be deducted by your life insurance provider. You will also have to pay taxes on any gains earned on the cash value portion. Many people feel that this is their only choice if they are having trouble paying their premiums each month. However, this option is hardly, if ever, recommended. If you are
considering this option, it is important that you speak with your financial advisor about alternatives.
4. Sell Your Policy for Cash—Choose a Life Settlement
Life settlements are getting attention like never before. A life settlement can turn an eligible life insurance policy into a major defense against the unprecedented economic crisis that we are facing. Selling an unwanted policy to a third party, especially if you find yourself strapped to a policy with increasing premiums or that is coming close to lapsing, can get you more than the cash value of your policy. In times of financial distress and a strained market, having liquid assets available can give you more freedom to achieve a broader range of financial goals that you may not have thought were possible.
If you happen to be a market wiz, you’ll know that when stocks take a dip, that’s often the cue to jump in while the water’s warm. Extra cash from a life settlement can be used to invest back into the market, which puts you on the offense during a financial crisis and in a better position to seize a golden opportunity.
But maybe stocks aren’t your cup of tea, and the uncertainty of market trends make you more anxious than excited. If your aim is to enjoy a relaxed retirement without the potential worries that come with market volatility, then a stream of guaranteed income in the form of an income annuity investment might be more your style.
The vast majority of seniors out there don’t have much financial wiggle room to invest at all, as they master the art of living on a budget to manage their everyday needs. These cash flow champions would be more comfortable beefing up their emergency funds and prefer to avoid making any withdrawals from their investments.
If you happen to fall into any of the categories above, one of the biggest mistakes that you can make is thinking that an existing life insurance policy offers no value or benefit when it comes to reaching your goals. In each of these situations, selling an unwanted life insurance policy could actually be the most suitable option to help generate the needed cash flow.
At this point in time, not every financial advisor has adequate knowledge about the secondary market for life insurance, or they may be misinformed about just how valuable this alternative can be for seniors who could benefit. Our clients are constantly surprised by just how much they can receive by selling an asset that they weren’t aware could be sold in the first place. Therefore, it is imperative that if you are considering this option, you have a consultation with a professional in this field. Our team at ALIR Settlements is always here to learn about your situation and unique circumstances, and to do everything in our power to help you achieve your goals for the future.