Seniors who still own a life insurance policy they no longer need or can afford, may very likely have a valuable asset on their hands, and may not even be aware of its hefty market value. If you are a senior citizen and considering either lapsing or cashing in a life insurance policy without first finding out its hidden value, then you could be losing thousands of dollars.
Increased healthcare cost in your golden years often consume large amounts of your retirement fund, and can even pose a threat to your financial wellbeing. Below we examine how a Life Settlement may provide valuable benefits in the years to come, including extra cash for healthcare costs, retirement travel, or whatever else you may need the money for.
What is a Life Settlement?
A Life Settlement is a legal term for selling a life insurance policy you own to a third-party investor. A life insurance policy is a valuable asset that can be traded, sold, or exchanged, just like a car or house, for cash or other financial gains. Many reasons can warrant a policy owner to sell his or her life insurance policy. Today, life settlements are widely used and accepted as realty, by those who understand the true value of a mature life insurance policy. Yet, it is surprising such a large percentage of the senior population has little to no knowledge they own and can sell off this prized asset, when it is no longer needed, wanted, or affordable. For example, your policy is like a house; you pay mortgage payments for years, and instead of forgoing the mortgage payments or completely losing the house, you would opt to sell it at market value. You can do the same with the life insurance policy you own.
Seniors in financial straits have been profitably selling off their unwanted life insurance policies for years and years. The Supreme Court made a decision to uphold the right of policyholders to transfer their insurance policy to an unrelated third party. - Grigsby v. Russell :: 222 U.S. 149 (1911)
Studies approximate 1.1 million policies are given up or abandoned yearly by seniors. That is an estimated $112 billion in lost face value by those unaware of their right to sell. Insurance companies have long been aware it is difficult for seniors to maintain their policies due to the extreme, rising costs of insurance at advanced ages, and unless those seniors have been informed of the right to sell the life insurance asset it is common to see lapse rates as high as 88% of those issued, in the United States. Imagine, all those years of payments never resulting in a single payout to the policyholder's claim... tragic! The most common policies sold to the secondary market are Universal Life Policies and Term Life Policies with a conversion privilege. Other types can be considered, as well, such as whole life and survivor life plans.
It was studied and shown in a London Business School survey that: “Americans who are savvy enough to sell their unwanted life insurance plan, received more than 400% of the amount due to them if they had surrendered the policies to their life insurance company.” Also, according to a study by the US Government Accountability Office (GAO), in 2010: “The United States’ policyholders received four to eight times more than surrender values of their policies from life settlement between 2006 and 2009.”
4 Top Benefits of Selling your Life Insurance Policy
There are many benefits you can enjoy by exchanging your life insurance. These advantages range from protection, continuous income, instant payment, to long-term care benefits. Sadly, though, most insurance company rarely, if ever, educate their clients about the hidden benefits of exchanging life insurance policies in the secondary insurance market. Below are the advantages you stand to gain by selling your policy, instead of surrendering it to the policy provider:
1. Long-Term Care Advantage - One of the reasons to sell your policy is for long-term care benefits. Designated care providers can be paid tax-free long-term care expenses, after the agreement. The senior chooses his or her preferred care providers, and the financial amount agreed to will be paid directly to those select providers (such as assisted living, memory care, and adult day care facilities, as well as home care, and skilled nursing providers).
2. Cash Payment - You stand to gain a substantially higher lump sum payment compared to just receiving the cash value of your life insurance policy upon surrender (remember: it can be as much as 4 to 8 times more!). It is a win-win situation.
3. Lifetime Income - If your retirement funds and income could use a boost, selling your policy will supplement your current savings as a lifetime payment, should your needs require such a guarantee. This additional protection can be paid monthly to help bolster your financial stability for things such as healthcare, monthly bills, and much more.
4. Protection Benefit - You can also keep a premium-free, partial policy and still retain your death benefits for designated beneficiaries. This ensures continuous protection for your loved ones, without paying future premiums.
How is a Policy's Value Calculated?
Numerous analytical determinations are considered that govern an offer amount, if one is to be made. Important factors used are included below, but are not limited to:
- The face value of the policy or its death benefit.
- The annual premium.
- The duration of premium payment.
- The current health of the insured.
Who is Most Likely to be Accepted by Secondary Market Buyers?
There are many individual elements to consider, however a few good points to focus on, if you are looking to sell your life insurance policy, are:
- The age of the insured: Secondary market buyers like to see age 70+, regardless of health conditions.
- The face value of a policy: The policy face value should be $100,000 minimum, but can easily go as high as $30 million.
Life settlements have made the lives of many much more comfortable, for those who have recognized the full potential of their policies and found the secondary buying market. It is evident there are substantial benefits in selling a life insurance policy, instead of lapsing or surrendering it to the insurance providers. With the above information, seniors can now have peace of mind in the knowledge that they know the 4 hidden values of their insurance plan, should they choose not to continue to pay premiums or find those payments unaffordable.