Before You Let Your Life Insurance Policy Go . . . Read This
Chances are you bought your life insurance policy much earlier in life, and for certain reasons. You had a young family to protect, an unpaid mortgage, future college tuition to pay for, income you needed to protect. For many people, the need to keep life insurance in place long-term, or even permanently is a no-brainer. But what about people who find themselves in another category? The reasons why someone initially purchased their life insurance policy may no longer be relevant decades later, or maybe there are other things taking priority.
For a few reasons, you might be finding yourself in a position where you're thinking about letting go of your policy. Maybe you no longer need your current life insurance policy for various reasons, or maybe it's not so much a matter of "need" as it is that there are more pressing things that you could use a surge of cash for (healthcare costs, long term care, cover basic living expenses, etc). Or maybe the premiums increase every year and it's getting to the point where you just can't afford to keep it in place. So what do you do? Just cancel the policy, or let it lapse? Or do you have another option?
Another option . . .
Life Settlements are an important financial tool that many financial advisors and the general public know surprisingly little about. But what is a "life settlement"? A life settlement is simply the sale of a life insurance policy from the original policyowner to a third-party investor. Yes, there is a market out there where investors buy life insurance policies as "investments"! The selling policyowner receives an upfront cash payment in exchange for transferring ownership of the life insurance policy to a third party investor who will then own the policy. They will take over payments of the insurance premiums and when you pass away, the death benefit is paid out to the third party investor who now owns the policy.
Why would anyone want to sell their life insurance policy?
The annual U.S. life insurance lapse rate is 4.5%. This means that out of the $20 trillion of in-force life insurance, roughly $900 billion of life insurance death benefits lapse every year. The reality is that many policies are never claimed simply because circumstances change and the coverage is really no longer necessary, or it has become unaffordable. That's a lot of money that people are letting go of! Also, many people have no idea that another potential option exists. But if you spent years paying into a policy, doesn't it make sense to see if you can get anything for the policy before just letting it go?
Who qualifies for Life Settlement?
Candidacy for a life settlement depends on several factors, some of which are:
Age - Ideal candidates are seniors, age 65 or older. Age is the most important variable in calculating a life settlement offer.
Policy size - The policy that is being sold generally must have a death benefit of at least $100,000.
Length of ownership - You need to have owned your policy for 2 years or more
Policy type - The policy must be a whole life, universal life, or a term life policy that is convertible into one of those types of permanent policies. Standard term policies generally don't apply.
How do you find out if a Life Settlement is the right option for you?
Contact an agent - Life settlements aren't the answer for everyone so it's important that you work with a great agent. They will represent you and your best interests and look at your entire situation as a whole to determine whether letting go or selling the policy is justified. They can also tell you if there is another option available that would allow you to keep your policy in place. If you go directly to a Life Settlement Provider, they will work to simply purchase the policy themselves, and not "shop" to obtain competing quotes. An agent will.
Think ahead - the entire process of looking into eligibility, and shopping a policy can take a few months. So don't wait until you absolutely need to let go of your policy immediately to look into the possibility of doing a life settlement. Think ahead and start the process earlier rather than later.
For people who otherwise plan to surrender their life insurance policy anyways, either because they simply don't want it, don't need it, or they can no longer afford to keep it, life insurance settlements can be an appealing financial alternative to consider to maximize the value when walking away from the policy. It never hurts to look into it!
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Thinking of letting go of your policy, and want
to know if a Life Settlement makes sense for you?
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