Not all things in life are permanent. Careers change, families change, health changes – one of the things we can count on is change to occur. Fortunately, not all change is for the worse.
Mortgage Debt Or Income Replacement
Sometimes our need for life insurance changes. When you purchased your permanent life insurance policy, you probably did so intending to keep it for the rest of your life. Otherwise, you would have bought term insurance for a temporary need lasting for a specific number of years, such as protection for substantial mortgage debt or income replacement while your children were younger.
Estate Taxes
When you purchased your permanent life insurance policy (whole life, universal life, variable universal life), you probably had different objectives. Perhaps you bought it to provide the funds needed to pay for estate taxes upon your death, or you may have purchased it to accumulate cash value for additional income during your retirement years.
Policy No Longer Needed
But perhaps there have been changes in your life, personal or otherwise, that have changed your need, or ability, to pay for a permanent life insurance policy. An external reason, for example, would be that the value of your estate has increased enough for it to be taxed under current federal estate tax law. Or perhaps your pension plan has performed significantly better than you anticipated, and you no longer need life insurance to leave to your heirs. In either of these instances, you may no longer see a need to continue paying premiums on your life insurance policy.
Premiums Too High
Other you may no longer wish to continue paying on your permanent policy are the premiums have risen to the point where they’re no longer affordable, or your health or that of a loved one has worsened. Correspondingly, you either need the current cash value inside the policy, or you intend to let it lapse.
Don’t Surrender Policy / Allow The Policy Lapse
In any of these instances, surrendering your policy or letting it lapse may be a financial decision that could have long-lasting negative financial consequences. There are alternatives that can let you realize financial gain from a permanent life insurance policy that you’ve been paying premiums on for years, namely a life settlement or viatical settlement.
How Life Settlements Bring Significant Value To Policyholders
With a life settlement, you do not have to let the policy lapse, or surrender it and pay surrender charges to the insurer. Instead, you can stop paying premiums and collect a lump sum payment that is greater than the cash value of the policy, but less than the face amount. Someone else, the purchaser of your policy, will continue making premium payments, and they will name the new beneficiary of the policy.
As a result of this sale of the policy, you will now have the liquidity to enjoy your retirement in a more luxurious mode, pay medical bills that have arisen due to a decline in your health or that of a family member, pay for long-term care expenses, or any number of other reasons that have created a need for liquidity in your life.
Comparing Viatical Settlements To Life Settlements
A viatical settlement is very similar to a life settlement except for the fact that a viatical settlement can occur when the insured is terminally ill and has a life expectancy of 24 months or less. The purchase price for a viatical settlement usually is higher than that of a life settlement because the life expectancy is shorter, meaning a higher rate of return for the buyer of the policy.
For example, with the average life expectancy for a healthy 69-year-old male being approximately ten years, it would be more profitable for an investor to purchase the policy of a 69-year-old male with a terminal illness because they would capture the return of their investment in less than two years. Otherwise, they could possibly need to wait ten years for the healthy 69-year-old to pass away. Of course, there are instances where someone given 24 months to live survived for many years beyond that.
Life Settlement Brokers
If you have a permanent life insurance policy that you no longer need, a life settlement broker can guide and advise you on the best course of action as it relates to your situation. A reputable life settlement broker will give you detailed information on the pluses and minuses of life settlements and will not pressure you into taking action that would have a negative financial impact on you.