News & Events

When Should You Sell Your Life Insurance?

Kimberly MaturinoNews

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A quick look at when a life settlement is the right choice.

Each individuals situation is unique and this can present a challenge.  Policy holders that are up to the challenge of identifying unique solutions for their financial needs are positioned to preserve more wealth.  With that in mind, what are some circumstances in which individuals may find that selling their life insurance via a life settlement is beneficial?

life settlement beneficial

  • When a policy holder can no longer afford the insurance premiums:

A very common situation policy owners encounter is when they have had a change in circumstance and their life insurance premiums are putting a strain on their finances. As a result, the policy holder may be considering letting the policy lapse forfeiting liquidity.

For example, consider an individual with a $500,000 life insurance policy that is nearing bankruptcy.  In this situation, many are forced to stop paying premiums and let the policy lapse.  The result of this would be a forfeiture of any potential value in the life insurance policy.  In a scenario such as this exploring a life settlement to sell the life insurance policy would open the option for the policy owner to receive compensation for the policy value, rather than letting it lapse worthless.

  • When long-term care needs arise:

As individuals age it is becoming increasingly common for long-term care expenses to eat into their fixed income. By selling unneeded life insurance policies via a life settlement this frees up policy owners from high premiums, allowing them to dedicate their finite resources towards necessary living costs.

  • When an policy owner is looking to reallocate funds to a more advantageous investment:

As time passes some individuals discover that the value of their life insurance asset is misallocated in their financial or estate plan.  Considering the option to recapture the life settlement value in their life insurance can fortify their estate.

  • Reevaluation of key man insurance costs:

Take a 75-year-old company owner with an insurance policy worth $10 million.  The policy was purchased to facilitate the purchase of the company from the owner’s estate by the successor.  In such a scenario, it would not be uncommon for the annual premiums to be in excess of $400,000.  With prudent financial planning the policy may have a life settlement value of $3 million which would open the option for lowering the cost of insurance or an early buyout of the company by the successor.  The flexibility life settlements provide are a powerful resource in the hands of discerning policy owners.

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selling your life insurance policy can free you of unwanted premiums that no longer fit into your current estate plan
  • When a policy owner outgrows their policy:

It is not uncommon for an individual to have a policy that was purchased decades ago when they had young children. As these children grow up and have families and insurance of their own the insurance policies their parents purchased are no longer necessary.  In cases like this it would be prudent to have the policy evaluated to see if a life settlement is a viable option.

The life settlement may allow an aged unwanted or unneeded policy to be converted into liquid capital that can be reinvested in a manner that is more in line with current needs and goals.

  • When changes in estate tax exemptions influence planning:

In the past, a significant number of policies where purchased to mitigate estate tax burdens.  However, in the past decade estate tax exemptions have increased dramatically.  Due to this shift these tax planning insurance policies have lost their utility and are an unnecessary expense.  Selling the policies can free policy owners of unwanted premiums that no longer fit into their current estate plan.

If you are looking for more information on how to work with life settlements feel free to contact us.

For a quick estimate of a clients policy value be sure to use our online life settlement calculator.