Life happens and when the hard times come, you may wonder if you should let your life insurance policy lapse to pay your other bills. Older Americans may have a variety of reasons why they want to sell their policy. You may, for example, no longer need the policy to cover your estate taxes. Regardless of the reasons, it may make sense for you to sell your policy when you no longer have a need for it.
Selling through a Life Settlement
You can sell your policy through an agency, which buys your policy as an investment. If you die, they will receive the death benefit. When you can’t afford your premiums or don’t have the need to pay the premiums anymore, you may want to sell it rather than walk away from it. You will make back an estimated 20 to 25 percent on the price of the policy. Think about it: 25 percent on a $500,000 policy will sell for $125,000. Would you want to walk away from that much cash? Most people, even millionaires, can’t afford to walk away from that much money. Even if you could walk away from it, it wouldn’t be a wise decision considering the amount.
Think of It as an Asset
Unlike car insurance or home insurance, life insurance policies can serve as an asset. Walking away from them or getting only the surrender value makes little sense when you can sell it for more. Along with selling the policy, some people will turn their policy into an annuity. An annuity will promise you income that lasts as long as you live, and many people have used this as a method for retirement. You can do your research and even purchase a policy online to make quick work of it but be sure that you have asked the right questions and done your due diligence if you decide to eliminate working with an in-person broker.
Once you stop working, the bills won’t stop piling up. If you depend solely on your retirement, it may not give you as much. An annuity adds to your income stream and helps you to meet your basic living costs. Keep in mind, as an asset, this doesn’t apply to term policies. You must get the whole plan with a cash value component to qualify as an asset. It qualifies because you can withdraw funds as long as you live.
How Does a Life Settlement Work?
The settlement agency will exchange cash for your policy. You will no longer own the policy or need to make payments on it. Once you pass away, they will receive the benefits on it. To put it into perspective, if you are older than 65 and have a policy worth $100,000 or more, value investors may express interest in it. After you sell the policy, it enters a blind pool where a financial institution will oversee it. They build a layer of privacy in with the deal. Before you go to sell, however, you should set your expectations with a healthy realism. We said about 20 to 25 percent, but the exact offer depends on several factors like the cash value and if it has any loans against the policy. The amount will also look at your health and age.
