When’s the last time you thought about your life insurance policy? If your children are grown up and self-sufficient, or you’re widowed or divorced, the answer might be: Not lately.
But maybe you should start thinking about it. When you do, you might just find that you don’t really need it anymore.
This is often where seniors with unnecessary life insurance policies stop. They may think, “Oh well,” and either keep paying the premium, let it lapse, or cash out the policy.
Life insurance is an asset, just like your car or house. And though you may not know it, your life insurance can be one of the largest unmanaged assets you own. Like any asset, it’s important to know what your life insurance is worth.
When valuating your life insurance, keep in mind your life insurance company reports your policy’s cash surrender value, which is not the same as its fair market value. Even a term policy with no cash surrender value can still hold market value and provide a lump sum now – or when you need it. Always be sure to appraise your policy before making any further decisions.
Once you have a true value of your life insurance policy, you may want to consider another option that can offer seniors much more value for their life insurance policies. It’s called a life settlement, and involves selling your policy on the secondary market with the help of a financial advisor and a life settlement broker.
How a life settlement works
A senior who no longer needs his or her life insurance policy may contact their financial advisor (or vice versa) to initiate the life settlement.
First, the policyholder must see if their policy qualifies for a life settlement. There are several criteria that a life settlement broker, like Ashar, will look at to see if the policy qualifies:
- Health of the insured
- Type of policy
- Value of the policy (which includes the premium, whether loans are taken out on the policy, and when it matures)
Advisors can get a quick idea of whether a policy might qualify by taking Ashar’s Policy Quiz.
If the policy qualifies, the advisor will work with a life settlement broker, who will then shop the policy around to various life settlement providers. These providers work on behalf of investors. The broker will create a bidding war for your policy, ensuring that your receive the best offer possible.
This offer will be greater than the cash value of your policy - sometimes, it can be as much as 800 percent greater!
Once you accept an offer, the papers are signed and you receive a lump sum of cash in exchange for your policy. You can use this money however you like - it’s yours with no strings attached.
Advantages of a life settlement
Life settlements aren’t for everyone. If you think your family members may need your life insurance policy after you pass away, then there’s no reason to get rid of it.
If, however, you don’t expect that anyone will need the policy after you die, or if you are in need of money now to pay for long-term care or medical bills, a life settlement can be a good solution.
Life settlements also eliminate costly insurance premiums, which can quickly become a financial burden once we’re living on retirement savings. Your life insurance policy can also be converted into a long-term care settlement, in which the funds from the sale of the policy are placed into an account that the long-term care provider withdraws from to pay for your care.
How do I get started?
The easiest way to get started with a life settlement is to contact your financial advisor and ask them to see if your policy might qualify. If it does, you’ll want to work closely with him or her to ensure that the process is transparent, ethical, and results in your receiving the best value for your policy.
Be wary of life settlement providers that correspond directly with consumers. These companies represent their investors’ best interests - which means that they’re going to try to purchase your policy for the lowest possible cost.
Involving a life settlement broker, however, means that your best interests will also be represented, and that you’ll receive the highest market offer possible.
Want to learn more about life settlements? Read our post “Majority of Seniors Still Not Aware of Life Settlement Option.”