Selling Your Life Insurance Policy ...

… is a unique way to obtain cash for retirement as a senior. You can benefit from your life insurance policy by selling it for a discounted value, rather than keeping it until death.

What to consider before selling a life insurance: 

Should you consider?
-You need the money.
-Your have no beneficiaries any longer or they don’t need the money.
-The premiums are unaffordable.
-Your buyout is higher than what you would get if you surrendered the policy.

 Should you forget about it?
-You may be uninsurable and unable to buy life insurance again.
-Your beneficiaries will lose the death benefits they were going to receive.
-The offer is not representative of the true value of the policy.
-Your payout will often be less than 20% of the death benefit.

With the stock market tumble (despite the big rebound) seniors do not have the time to wait for the market to recover all of their losses. The cost of living continues and if inflation soars as predicted, an existing life insurance policy may have value that was not considered before all of this happened.

Last year, there were over $12 billion of life insurance death benefits sold according to the Life Insurance Settlement Association, an industry group. That is nearly double the previous two years. Called a “life settlement”, the policyholder finds a broker who will find a buyer for the policy. The offer may be considerably more than what would have been received if the policy was just terminated for the surrender value.

It is important to remember, the buyer is now the beneficiary of the policy and expects to receive the death benefit when the senior dies. So the family is forfeiting a significant asset for current dollars. But that may be an acceptable tradeoff in these financial times.

A decision like this should not be made in a vacuum. It is important to include the beneficiaries and any financial advisor you trust. There are several considerations that need to be addressed before the sale is completed. There may be alternative sources of cash available. Perhaps you could borrow against the cash surrender values and maintain the death benefit. Some companies have what is called and accelerated death benefit. The company will advance money against the death proceeds to prevent policyholders from having to sell it. Contact your life insurance agent and explore the options before you give up your coverage. 

It must be mentioned, the life settlement world has had its critics. So make sure you work with licensed brokers who have been screened and are monitored by state regulators.

Who should think about a life settlement? The insureds must be in their mid to late 70s in most cases, with a policy valued at $250,000 or more. They should no longer need it or want it. With the credit crunch, it has been harder to find buyers because the capital has dried up. But we are seeing investors returning to the market, recently. As a result, offers have improved, markedly.

Purchase amounts will vary depending on age, gender and your overall state of health. A good rule of thumb is 20% of the policy’s death benefit will be offered. An important consideration is how much cash surrender value remains in the policy. But in most cases, the purchase price will almost always be greater than the policyholder would get if they just surrendered the policy.

There is a lot of paperwork involved in these transactions. The buyer will want to see medical records and examine the policy. The buyer will also want to confirm the values with the insurance carrier. And don’t forget the tax impact. The sale may impact your eligibility for Medicaid or other government benefits. A good tax adviser will know the factors to consider.