A life settlement is gradually gaining popularity and people an easy way to get rid of the life insurance policy in case policyholder doesn’t need it anymore. There can be many reasons for which policyholders might want to encash their policy. Since more and more people are opting for life settlements, financial advisors must have knowledge of specific things related to life settlement so they can guide the customers. Not every financial advisor will have time to learn another complicated business, so life settlement companies exist. But having a fair idea of how the transactions work in life settlement will be helpful in calculation of the taxes on the amount received.
A life settlement is a way in which seniors can liquidate their assets in a time of need. Insurance policy is an asset just like car, property, jewelry, etc. selling policy will allow getting amount which is usually more than the cash surrender value of the policy. Usually surrendering policy will fetch a fraction of the amount plus owner will have to pay a surrender fee. Life settlements are envisioned to benefit the old people who direly need cash for any reason or cannot pay heavy premiums any further. Financial advisors must not recommend anyone to go for life settlement if the policyholder has dependents.
As people grow older the long-term care cost continues to grow as well which involves Medicaid, the stats are evident of the families breaking up because of financial expenditure due to long-term care that can be extended over years. To get relief in a situation policyholder can decide to sell a life insurance policy that can go a long way. Once the sale transaction is done and policyholder gets a lump sum amount of cash it becomes their income are free to use the funds for nursing, medical bills, assisted living facility, etc. For some families, a life settlement can bring back their happiness and they are living life to the fullest without worrying about care giving bills.
Life settlements are not limited to the individuals but can be applied in the case of the partnership business where one partner retires or expires, the policy can be liquidated to further fund the business or use it for a retirement package.
Another case where life settlement can be of benefit is non-profits where the non-profit organization receives life insurance as a donation. However, people living much longer make unanticipated premium payments to keep a policy in force. Liquidating such a policy gives instant access to funding.
Since there are no centralized exchanges for life insurance so there is no defined market value for an insurance policy, so selling life insurance policy can be complicated. Keeping a few things in consideration even before one thinks to sell their life insurance policy:-
- The premium amount and schedules greatly vary to a great extent
- The health of the insured is important to calculate the coverage and other costs associated with the policy.
- The life expectancy or your medical conditions
- The type of life insurance purchased
- The policy should be at least two years old
- The minimum face value of the policy should be $100,000 or more
- A policyholder should be 65 years or more
These are the factor based on which the cash value will be evaluated. Either choose a life settlement broker or company your policy will be listed in front of the broad client base. Apart from life settlements, other methods are using which your life insurance can fetch you money in urgency like:-
- Accelerated death benefit – It is a kind of advance from your death benefit.
- Borrowing money from the policy
- Surrender the coverage in exchange for lump sum cash value from the policy.
It’s best to consult a life settlement company having life settlement expertise along with financial knowledge to properly take advantage. Life Settlement Company helps you to move through the complex procedure by identifying the potential settlement cases.