Dealing with life insurance or any other official paperwork can be overwhelming. This is especially true if you find yourself unable to pay your policy premiums or now having to deal with unexpected medical expenses. There is a way out though and opting to sell life insurance policy doesn’t have to be stressful. On the other hand, it can be a welcome financial relief.
Why you Might Need to Sell Life insurance Policy
Opting for a life settlement is a very personal decision. Regardless, if your circumstances lend themselves to it then selling your policy can be a very good option. Essentially, it’s that simple because you’re selling your life insurance policy in exchange for a lump sum. Some of the main reasons people choose a life settlement are as follows:
- Unexpected medical expenses
- No need for a death-benefit cash payout
- Premium Payments Unmanageable
Unexpected medical expenses
Sadly, as we get older, medical expenses become a regular part of life. Unfortunately, we can often find ourselves facing a terminal illness of some sort. It’s a tough phase of our lives and the last thing you probably want to think about is how to sell your life insurance. Then again, it can be exactly what we need to generate extra finances.
That’s when your policy could come in useful. Although, before you dive into doing a life settlement, it’s worth knowing that you can also withdraw money or take out a loan on a permanent life insurance policy.
No need for a death-benefit cash payout
Clearly, if you go for a life settlement then your dependents will no longer get your death benefit. Having said that, many people find that situations change. For example, you might have taken out your universal life insurance policy as protection for your family to be able to pay the mortgage or university fees. If those have now been paid off then you might realize that your family wouldn’t need any extra payout. That’s when you can reduce your outgoings such that you stop premium payments by doing a life settlement process.
Premium Payments Unmanageable
It’s not just medical expenses that can surprise us but retiring can also be more of a financial drain than we ever expected. In those cases, you’ll have to weigh up the pros and cons of paying premiums versus getting a lump sum now through life settlements and losing your death benefit.
What is a Life Settlement?
The short answer is that a life settlement is when you sell a life insurance policy. It’s important to note that you can’t sell a term life insurance policy and that you first have to convert it to a permanent life insurance. This can then be either a whole or a universal life insurance policy. Either way, you’ll first have to check that you can actually convert your term life insurance policy.
Once you know that you’re ready to sell life insurance policy then here are some of the key highlights to bear in mind:
- Sell your policy for more than the surrender value
- Your death benefit passes to a third party
- You have to meet certain criteria
Receive More than Surrender Value
One of the biggest advantages of a life settlement is that you receive more cash value than if you simply terminated your life insurance policy. When you just cancel your policy, you only receive what’s known as surrender value cash. It’s calculated by totaling up your premium payments to date so you get more or less your money back, minus some charges.
On the flip side, a life settlement means that you sell your death benefit to a third party such that they receive the payout when you die. It doesn’t make any difference to you when you’re still alive because they have no rights or claims over you. Nevertheless, it does mean that they’re willing to pay you more so that they can then make money from your death benefit. Although, different companies will offer you different sums so it can be good to shop around when selling life insurance policies.
Lose Death Benefit
Clearly, you won’t have a death benefit when selling a life insurance policy either through a life settlement or by canceling it. This is probably one of the biggest factors that people have to consider before they can even face the question “should I sell my life insurance”. The final solution might never be perfect though so it’s a question of balancing all the pros and cons.
Before you go too far down the road, you need to check that you actually qualify for a life settlement. Then again, different life settlement companies will have different criteria and various ways of calculating the value of your policy. Often, this also includes how much risk they’re willing to take on.
Either way, generally you have to be above the age of 70. Having said that, you can do a viatical life settlement if you’re younger. This means that you have a terminal illness so your life expectancy has decreased. Then a life settlement becomes more attractive to a third party. That’s because they won’t have to wait so long for the payout.
Another important point is that receiving a life settlement lump sum can impact any other benefits you’re receiving. It’s therefore always worth confirming everything with a financial adviser before you contact a life settlement company or broker and sell your insurance policy for cash.
Parting Words If you Decide to Sell Life Insurance Policy
Life is full of ups and downs. Just when you think you’ve covered everything and your plan is the perfect one then something else comes up. That’s why a life settlement can be such a helpful way out. Of course, you should still talk to your life insurance company and a financial adviser. They can both help you weigh up your situation, including all your options. You’ll then find it easier to make a decision that works for you.