Selling a life insurance policy can make sense for someone who has sufficient assets to ensure their loved ones are well cared for after their death and who no longer wants to make life insurance payments. However, the amount buyers typically offer for the policy is a fraction of its true value. Therefore, it’s important to weigh the pros and cons carefully before making such a major financial decision.
It’s common for people to take out life insurance policies when they’re younger and are starting families. These individuals want the peace of mind of knowing their spouse and children will be cared for in the event of the individual’s death. Others take out policies for their business.
In both these cases, a senior may feel the policy they took out when they were younger is no longer necessary. Their children may be fully grown, and the individual may have saved a substantial retirement fund and paid off their mortgage, ensuring their family’s financial future. Their business may be self-sustaining, or they may even have sold it, making the policy for the business redundant.
In these cases, it doesn’t make sense to continue paying premiums when the money can be used for something else.
Seniors who have been faced with unexpected expenses, such as medical bills or even home repairs, may feel it makes sense to unlock the money in their life insurance policy early too.
Life insurance policies are intended to be paid out in the event of a person’s death. They may offer some limited options for early redemption for those who are terminally ill. The terms and conditions of a policy may include a cash surrender value. This is the amount the insurance company pays to a policyholder if they decide to terminate the policy early.
The cash surrender value of a policy is usually very small compared to the value of the death benefit, making surrendering a policy in this way something that should only be considered as a last resort.
Companies that buy life insurance policies usually offer more than the cash settlement value but still a fraction of the amount of the death benefit. Seniors can expect to see offers of around 20% of the value of the policy. The actual value depends on the seller’s age, health status and policy type.
Brokers that help seniors find buyers for their life insurance policies charge fees for the service. The market is regulated to prevent predatory tactics, but some life settlement companies have opaque pricing that can confuse consumers. The regulations vary from state to state. Anyone considering selling a policy should check the terms and conditions supplied by the broker before signing any paperwork and talk to a financial advisor before making a final decision.
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