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You signed up for life insurance in an effort to provide a financial security blanket for your loved ones after you die, but what if you don’t need it or just can’t afford it anymore?
Did you know that you can convert to cash while you’re still alive to get you out of a financial crisis? You could even use it to generate additional income for your golden years.
That’s how it is. You can sell your life insurance policy like any other private property. This transaction is called a life agreement.
Maybe you need the cash to cover a big (and unexpected) expense, or you just want to get rid of the monthly premium payment. A life settlement is often the only lifeline for many seniors who are struggling to cover stacks of medical bills after becoming seriously ill or needing long-term care in retirement.
Those unaware of this option end up selling their cars or homes or racking up huge debts while paying for care, not knowing that their insurance policy could get the same amount (or more) of cash than their vehicle’s equity or total equity. on your property.
If you ever think of going down the same path, don’t. Selling your life insurance policy to a person or entity may be a smart move, depending on your particular circumstances. Knowing how to sell it and determining if it’s the right move for you is critical to your financial future.
Related: Life Insurance: What to Consider as a Business Owner
Understanding Life Settlement: What is it and how does it work?
A life settlement is when you sell your life insurance policy to a third party for a lump sum that is less than the net death benefit but more than the cash surrender value.
Sellers typically receive a lump sum, and then the buyer assumes responsibility for the policy, pays premiums, and receives the full death benefit when the policyholder passes away.
As a policy owner, you can take advantage of several advantages of a life settlement. Some of these include the following:
- It provides an immediate source of cash that you can use for anything from paying off debt to financing a business venture to covering major expenses that may have arisen unexpectedly.
- You no longer have to keep track of the premiums that are due to the life insurance company.
- You no longer have to worry about saving for premiums if you can no longer afford the policy and don’t want it to lapse.
- You can use the lump sum to build a retirement fund or supplement your retirement income by purchasing an annuity.
- You can set aside the cash to pay for long-term care needs that may arise.
A life settlement is also an attractive option for those who have a policy with a high cash surrender value but do not need the death benefit. For example, you may have purchased a life insurance policy to secure the financial future of your spouse or children, who are no longer dependent on you. Upon becoming financially independent, the policy may no longer be necessary.
The same is true for seniors who may have purchased a policy when they were in good health, but now, with declining health, may find it difficult to pay the premiums. A living settlement can help them remove this burden and improve their quality of health care and life.
Related: Why Life Insurance Has to Be Part of Your Wealth Building Plan
Eligibility Requirements for a Life Settlement
Generally, you must be 65 or older and your policy must have a minimum face value of $100,000 to qualify for a life settlement. This is because investors would not want to pay the premiums on a policy for you if you could continue to live for decades.
Also, many states require that you wait at least a couple of years after a life insurance policy is issued before you can sell it. In some states, the waiting period is five years.
Are there any downsides to a life agreement?
The only drawback to a life settlement is that you will no longer have life insurance coverage. But if your family’s financial future is secure and you don’t need the policy, there’s nothing to lose in a life settlement transaction.
Ready to make the big decision?
Whether you need the cash or want to be free of premiums, life settlements are a great decision.
You should carefully evaluate your circumstances and consider all the benefits and drawbacks of selling a life insurance policy before making your final decision. Also, make sure you fully understand your state’s laws regarding life settlements to avoid getting into trouble.
If you think a life settlement is the best way forward for you, contact a life settlement broker or financial advisor to discuss your options. It really helps to shop around before closing the deal because some companies tend to make less than lucrative offers. A professional can help make sure you get a fair price for your policy.
As soon as a suitable prospect is found, you and the buyer will need to sign a contract outlining the terms of the sale. Once the contract has been signed, you will receive the agreed amount in a lump sum from the buyer.