Maximizing your life insurance payout with a life settlement can be a wise financial decision. Purchasing life insurance often stems from the need for financial security for dependents or safeguarding a business venture. Over time, however, these needs can change. Perhaps your children are now financially independent or you’ve retired and sold your business. Many life insurance policies stop serving their original purpose as circumstances evolve.
This significant shift is one reason many policies never pay out the expected death benefit. Industry data showed that over 90% of life insurance policies (by face amount) terminated in 2018 were either lapsed or surrendered, resulting in no death benefit being paid. Instead of accepting negligible returns after years of premium payments, converting your life insurance policy to cash through a life settlement becomes an attractive option.
There are several types of life insurance, but they generally fall into two categories: permanent or term life insurance. Permanent life insurance includes whole life (WL) and universal life (UL) policies. These policies guarantee coverage for the insured’s entire life as long as premiums are paid. They also have a savings component that accrues value over time. This is referred to as the “cash value” or “cash surrender value” if the policy is surrendered to the insurance company before a death benefit is paid.
While surrendering a permanent policy can yield some cash, converting it into a life settlement typically results in a payout that is on average four times, or more, than the cash surrender value. Some policyholders can even sell a portion of their policy while retaining a death benefit. This means both the policyholder and their beneficiaries can still benefit from the policy. Converting a permanent policy to cash is straightforward and can be done in just a few weeks.
Term life insurance, on the other hand, offers coverage for a set period, provided premiums are paid. These policies do not build cash value over time. However, many term policies can be converted into permanent policies, known as convertible term policies. Even non-convertible term policies might qualify for a life settlement under certain conditions. Therefore, it’s always worth exploring if a term policy can be converted to a life settlement.
There are various reasons to sell a life insurance policy. The first is the escalating cost of premiums, particularly as one enters retirement with reduced income. Another reason is the desire to access the policy’s value while still alive. When a policy loses its original purpose, converting it to cash can enhance retirement savings and offer financial flexibility. Life settlements come without restrictions on the use of the cash, providing tremendous financial freedom.
Many policyholders also opt for a life settlement to cover healthcare costs. This is true for both healthy individuals and those with impaired health, as life settlements have become more accessible. Rising healthcare and long-term care costs pose significant financial challenges for retirees. Cashing out a life insurance policy can provide additional savings and preparation for these expenses.
If you are planning to sell your policy, it’s crucial to keep up with premium payments. It may seem counterintuitive to continue paying for something you intend to sell, but lapsing can reduce your policy’s value. It can even result in the policy becoming inactive, rendering it unmarketable and void of any death benefit.
Thinking about converting your life insurance policy to cash? We can help you through every step of the life settlement process. Our dedication to helping clients meet their changing financial goals as they age makes us a reliable partner. Our services are geared toward providing the information and support you need to make informed decisions. We offer free quotes and estimates to ensure you have all you need to maximize your policy’s value and achieve financial flexibility. With us, you can convert your life insurance policy to cash seamlessly and transparently. We’re here to help you turn your policy into the financial resource you need today.
