A growing number of policyholders are selling their life insurance policies for a lump sum payment. These transactions, which are commonly known as life settlements or senior settlements, provide immediate liquidity for old or unwanted policy.
Here are seven reasons to sell your life insurance policy.
One of the most common reasons people sell their life insurance is to eliminate overlapping policies. A good number of people carry overlapping insurance policies that cost them thousands in unnecessary fees.
For instance, some people have an individual life insurance policy and a group insurance policy offered by their employers. These two policies offer the same coverage – protect a family from financial loss when the policyholder dies. While the group policies are relatively small, they are enough to protect a family from financial loss. A policyholder may, therefore, decide to sell his/her individual life insurance policy to free up funds for savings or other uses.
2. Policy No Longer Needed
The main reason for purchasing life insurance is to protect your loved ones in case you die prematurely. As time passes, that need may change. Some examples that could alter the need for life insurance include divorce, self-insurance and having grown up children that are financially dependent.
3. Premiums Too Expensive
The rising cost of life insurance is another reason why policyholders sell their life insurance. When rising premiums become unaffordable, you may consider surrendering the policy, letting it lapse or selling it. If you choose to sell the policy, you can sign up for another one that has a premium amount that you can afford or invest in areas that promise high returns.
However, before you make any decision, be sure to thoroughly examine your options with an insurance agent, an accountant, a financial advisor, or a reputable life settlement broker.
4. Retirement Planning
In some cases, policyholders may decide to sell their life insurance policy to boost their savings and supplement their retirement income. This is a great option, especially for older adults who want to improve their quality of life and live out their golden years on their terms.
5. Estate Planning
Life insurance plays a significant role in estate planning as it provides a solution to several objectives. Generally, it can be used either to create an estate for the beneficiaries or preserve the existing estate. Consequently, you can sell your life insurance and use the proceeds for estate planning purposes. These may include providing liquidity in an estate to pay off liabilities and establishing a fund for a person you’d like to support.
6. Medical Expenses
Another reason to sell your life insurance is to fund expensive medical bills. The life settlement can also be used to pay for senior care services such as nursing home care, assisted living, memory care, and hospice.
7. Qualifying for Medicaid
Finally, you can sell your life insurance to qualify for Medicaid. To be eligible for Medicaid, you must have less than $2,000 in assets. And depending on the type and value of your life insurance policy, it can count as an asset.
If your policy disqualifies you from getting Medicaid, you need to sell it, surrender it and spend down the cash value or transfer the policy’s ownership to your spouse.
Life settlements are a great way to benefit from the policy’s proceeds while still alive. However, this option is not for everyone and should be closely evaluated. Before taking any action, be sure to talk to your beneficiaries and attorney to find out if selling your policy is a good idea.