Selling your life insurance policy is a concept many individuals simply don’t know about. Thinkadvisor.com reported that nearly 90% of seniors surrender their life insurance policies without ever being aware that they could have sold the policy for substantially more cash.
Life insurance is something we often buy in younger years when we are financing a house and planning for kids to go to college. Later, we retire and pay off the mortgage and watch our kids graduate and venture out into the world. It’s not uncommon to have a life insurance policy that you are still paying premiums on that you don’t really need anymore.
But before you just stop paying the premiums and let the policy lapse, you should consider a more attractive option: life settlements.
What is a Life Settlement?
A life settlement is a financial transaction in which you can sell your life insurance to someone else for a one-time cash payout that is greater than the cash surrender value of the policy. The person who buys your policy now becomes the owner, beneficiary and takes over paying your premiums.
It’s very common for people to just outgrow their need for the life insurance policy purchased years ago. Rather than surrendering that policy for whatever nominal cash value it may have, you can instead sell the life insurance policy and gain quite a bit more. You can also choose to sell just a portion of the policy.
How Life Insurance Settlements Work
You put your life insurance policy up for sale. Perhaps you have a policy with a $500,000 death benefit and $50,000 in cash value if you surrender it. You can sell this policy to an investor, who may bid $100,000 or more. That investor will now take over paying your premiums, and he or she will also collect the death benefit when you pass away.
Now you have more cash than you would have gotten for surrendering, and you’ve also eliminated the financial burden of paying for that policy every month. Many retirees use life settlements for cash to help pay their long-term care needs. Others may find that just saving the cash makes their retirement budget feel less tight.
Who Would Buy my Life Insurance Policy?
Selling your life insurance policy is easier that you might think. There are many experienced investors are out there who purchase life insurance policies. You’ll find hedge funds and insurers who are also heavy hitters in this market. Often buyers have substantial investment portfolios.
Purchasing life insurance policies is a way for an investor to balance risk in a portfolio. This is because the sale of life insurance policies is not affected by stock market ups and downs. They are also a great way for savvy investors to generate competitive returns.
Life settlements as an investment have been around for over a century. Investment management firm Conning, Inc. reported that investors purchased $1.7 billion worth of life insurance in the U.S. in 2014.
Who are the Best Candidates for Life Settlements?
Investors like to buy from people age 65 and older who own policies with a face amount of $100,000 or more. Insured individuals who have one or more health problems are likely to have policies that are more attractive than someone very healthy with a longer life expectancy.
Your premiums for the life insurance policy may also factor into the policy’s value. Lower premiums will often generate higher selling prices.
Can I sell my term life insurance policy for cash?
While universal life policies are the most popular, convertible term life policies can also be sold.
You should always discuss the sale of your life insurance policy with your beneficiary and your accountant for any tax implications.
The Life Settlement Sales Process
Your first step in selling your policy is to complete an application and provide all the required documents that verify your insurance and medical status. A life settlement broker will review your documentation and determine if this policy is a viable candidate for a sale. If you qualify, you will receive multiple offers for your policy.
Once you sign off on the offer, closing documents will be generated for the change in ownership and sent to you for your signature. Lastly, your buyer will pay you the agreed-upon settlement amount.
Start to finish, the process usually takes 90 days to complete.
Wondering What Your Policy Might Be Worth?
At Boomer Benefits, we regularly meet Medicare beneficiaries who are still paying significant premiums for life insurance policies they no longer need. Now that they are retired, the life insurance policy premium can be a burden. Selling your life insurance policy can make a lot of sense for your wallet if you no longer need the coverage.
Don’t surrender for the cash value without first checking into options for selling your life insurance policy. Your policy could be worth 4-7 times the cash surrender value.
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