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 Eligible seniors can sell their life insurance policy for typically between two to four times what a life insurance provider would pay on a secondary market. Click here to discover if Life Settlements are right for you today! |
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Baby boomers! Can't wait for that perfect vacation?
Monday February 25, 2008 12:00AM | Click here to visit original article.
With the first baby boomers now officially reaching retirement age, many are looking at life settlements as an alternative to surrendering or letting their insurance policies lapse. Whether because of their inability or desire to continue to pay rising premiums, or because of the lack of need for the policy, they are realizing the benefits of having the option to sell. For those that qualify, life settlements can provide a cash infusion greater than the surrender value of a policy. They can also be used as an alternative investment. Term policies, which have no underlying cash value and typically disappear once surrendered, often have some value. Keep in mind that life settlements are not appropriate for everyone and it is estimated that 1 in 5 policyholders over age 65 are eligible. Prior to the rise of life settlements about ten years ago, the only option the insured had when they could not or did not want to make payments was to surrender the policy. Those that are surrendered and have a cash benefit, received two to four times less than from a life settlement. Currently, 88% of universal life policies never result in a death benefit. As a policy owner, you have the following choices available to you: • Let the existing policy lapse – Whether by choice or by forgetting to make a payment, once a policy lapses, there may no longer be value to it. • Surrender your policy – By notifying the insurer that you do not want to continue making payments, you may be entitled to some cash value. • Sell the policy - Certain policies may be able to be sold back to the insurer or through a life settlement. If settled, you would receive a cash payment now and your monthly payments would end. • Exchange the policy – You may be able to exchange your policy for one more aligned with your current needs. A life settlement is a relatively “newer” choice that involves the selling of an existing insurance policy to a third party other than your original insurer. Potential Benefits There are many benefits that can be realized from the sale of your current insurance policy to a life settlement. Life settlements: Provide resources NOW instead of later - The original reasons that you took out an insurance policy may still hold true today, but what if you want cash now? Unless an insured has less than a year to live, most insurance policies do not have a cash out amount, or if they do, they often are less than if the policy was sold to a third party. Considering a life settlement now can allow access to cash when needed most. This is especially important when your current premiums have become unaffordable or you are experiencing unexpected or unplanned financial hardships. Provide a cash value from policies originally deemed not to have any monetary value - The most significant benefit of a life settlement is to gain a monetary sum from an insurance policy that is no longer needed or that has either low or no value at all upon surrender. Can be used as an investment – Depending on your specific circumstances including age, policy amount, and life expectancy, you may be able to benefit from the sale of your policy by receiving an offer higher than the premiums paid. Determine the true value of your policy by receiving multiple bids on your policy’s worth versus just one by the insurer - You may be able to sell your policy back to your insurer under certain circumstances, but to truly determine its value, an open bid by multiple parties is necessary. Think about this as trading in a car to a dealer versus selling it to a private party. Regardless of the benefits of selling your policy, receiving a life settlement now provides an influx of money that can be used for a variety of reasons: • Pay off debts such as a mortgage • Provide yourself with quality nursing home or hospice care • Provide yourself with greater medical care not covered by current insurance or government care • Provide diversification to your investment portfolio • Fulfill lifelong dreams now such as a dream vacation • Fund inheritances now or give gifts to family • Fund a family member’s education • Give greater or immediate independence from government private assistance programs such as Medicare and Medicaid These examples are by no way all-inclusive, but they provide a sample of what a life settlement can offer you now. Eligibility Characteristics The above examples provide an insight into the wide variety of benefits available to those that qualify for a life settlement. But who is actually eligible? The general characteristics of those eligible: • Are over age 55 • Have a life expectancy of 21 years or less • Have owned the existing policy for more than two years • Have a policy with a face amount of at least $50, 000 Life Settlement Scenarios Let’s look at the following to illustrate three unique scenarios. In the first, the policy itself is unaffordable, in the second, the policy itself is not needed anymore, and in the third, the policy is being used as an investment. Scenario 1 Nancy took out a policy to fund her grandchildren’s education if she passed on. But with unexpected bills in retirement and increasing insurance premiums, she no longer can afford to make the monthly policy payments. By selling her policy to a life settlement, she can receive a cash sum now to help fund her retirement more comfortably and also to make cash gifts to her family as she sees fit. Instead of struggling to maintain insurance premiums, the monthly payments will stop and she will still be able to achieve her goals and help make her retirement more comfortable. Scenario 2 Michael took a term life policy when he was forty years of age to cover the expenses of supporting his family in case of an emergency. Twenty years later with his two children out of college and his mortgage nearly paid off, he decided he did not need his policy anymore. By stopping payments, his policy would lapse and there would be no more value in it. But by selling it to a life settlement, he receives a cash sum that was not expected and uses it to pay off his mortgage, fund a dream vacation for his family, and set aside funds for future use as he sees fit. Scenario 3 Gene just took out a variable life policy to help fund his family’s retirement. Gene is also aware that his policy may become more valuable if he sells it to a life settlement in the future. Having the option to sell his policy is a low risk option for him with potential gains as an investment in itself. Consequences of a Sale of a Policy Though the benefits of life settlements are plenty and straightforward, there are potential consequences that you may experience from the sale of your policy. These include: • Tax consequences – proceeds above the premiums paid are taxable • Loss of death benefit for heirs– heirs may be counting on the death benefit to live on • Privacy issues – your medical history will be made available to potential buyers of your policy • Higher replacement coverage – if you opt for another insurance policy, the costs may be much higher than current premiums • Possibility of not being able to replace coverage – due to insurable limits, you may not be able to get adequate coverage if you opt for a new insurance policy • Possible ineligibility for public assistance programs – with the cash settlement, your income level will rise and may make you ineligible for certain programs • Creditor claims eligibility – if you owe or have outstanding judgments against you, they are subject to creditor claims Before selling your policy, it is recommended that you discuss all of your options with your tax advisor, financial planner, and insurance agent along with your spouse and dependents. Life settlements offer you an additional choice in your financial planning. By having the ability to sell your insurance policy to a third party, you can take advantage of the possibility of a cash payout now that can help fund what you deem most important in your retirement years. Finding value in a policy that would have been surrendered or realizing the advantage of competitive bids are important benefits of a life settlement. Life settlements may not be right for you and should be discussed thoroughly with all relevant parties including your financial planner, insurance agent, family, and beneficiaries. Learn as much as you can about life settlements and use resources such as the industry trade group, LISA (Life Insurance Settlement Association) and information websites such as www.lifesettlements.com. There are a number of licensed agents and brokers who specialize in life settlements and are willing to answer any questions and discuss your available options. Knowing what is available to you in your specific situation is the most important thing you can do to ensure your financial future. |
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65 Year Old Female$15,000,000 Universal Life $332,270 Surrender Value Paid: $1,078,000
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80 Year Old Female$400,000 Universal Life $0 Surrender Value Paid: $68,000 ADVERTISEMENT
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