This piece is sponsored by Genesis Asset Advisors.
Most people spend time determining whether they need life insurance and finding the best policy to purchase. But have you ever considered selling your existing life insurance policy? Perhaps you’re facing mounting premiums or changing healthcare costs. Or maybe you’ve changed your outlook on spending for your retirement years, and the policy is no longer a benefit.
A life insurance settlement, which involves selling an existing policy in the secondary market, is an alternative to letting the policy lapse or surrendering it to the insurance company. The purchaser of the policy pays a cash payment to the policy owner that’s significantly higher than the current cash surrender value but lower than the policy face amount.
Selling a life insurance policy can allow a policyholder to monetize his or her policy. Once that transaction is complete, the purchaser takes over all future premium obligations and becomes owner and beneficiary of the policy.
Why Would You Sell Your Life Insurance Policy?
The proceeds of a life settlement can be used for whatever the policyholder wants and may lead to an increase in overall financial well-being. Although many people plan for retirement, the savings sometimes aren’t enough for long-term care, for example. An assisted care facility costs an average of $7,300 per month, and seniors may not have enough funds to cover the cost.
This is where selling a life insurance policy might make sense. Doing so releases policyholders from future premium obligations and puts money in their pockets that day. In the past, insurance companies sold policies with the promise that premiums would stay the same as long as the policy was active. Unfortunately, several companies are now increasing their premiums after years of low interest rates have impacted their quarterly profits. For seniors on a fixed income or in retirement, this adds undue stress.
Many seniors look to other forms of financing to cover their expenses, but loans must be paid back. Life settlements are cash in hand, and policyholders can use the money from the sale to pay off bills and live more at ease during their retirement years.
When to Sell Your Life Insurance Policy
Life insurance is a critical part of every financial plan. However, there are times when selling it makes more sense than keeping it. It might make sense to sell when:
- You can no longer afford the premium. Insurance costs increase as you get older, so the premium you thought you’d have to pay every year may not be enough to keep the policy going to your life expectancy. This creates a burden for people, especially those who are already struggling with their financial plan.
- You no longer need the insurance. Many people take out life insurance policies for a specific reason: Perhaps they need to support loved ones when they pass away, cover a mortgage, or pay for their children’s college education. But if income replacement isn’t an issue, the mortgage is paid off, and your children aren’t dependents, you no longer require the coverage — so there’s no need to continue paying those premiums.
- You no longer need to cover estate tax. It used to be that people purchased life insurance policies as a necessity to cover estate taxes upon death. These policies had a benefit of a few million dollars but cost several thousands of dollars per year. Recent changes in estate tax exemptions mean that many families aren’t subject to this tax anymore, and in such cases, selling the life insurance policy may be more beneficial than keeping it.
A life insurance settlement is an alternative to surrendering your policy or allowing it to lapse. By using a broker instead of going directly to a provider, you can create a competitive marketplace for your policy with access to all purchasers. This ensures you’ll get the most money for your policy. Situations change, and when they do, it’s best to know your options so that you can find a course of action that works best for you.
Geoffrey Gottesman is the managing director at Genesis Asset Advisors. He is responsible for ensuring that the best opportunity is procured on every case brought to market and uses his extensive leveraging strategies to ensure that goal is accomplished.
