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Senior Life Settlements Pros And Cons

Should you sell your life insurance for cash?

Should you sell your life insurance for cash?

You might have been told that you can sell your permanent (whole or universal life insurance) policy for cash, and you might wonder if this is a good idea. These transactions are called senior life settlements. Less commonly, they are referred to as viatical settlements. To qualify, the insured person usually has to be over 65 years old, own a permanent life insurance policy (or a convertible term policy), and be willing to accept an offer from an investor.

Are senior life settlements good or bad? It really depends on your perspective. If you own a life insurance policy, your perspective will be from the seller’s point of view. On the other hand, investors, life insurance companies, and of course – the former beneficiaries to the death benefit – all have their own points of view.

Consider this quick summary of the pros and cons of senior life settlement from the perspective of different parties who might be interested in this type of transaction.

  • Sellers: People who own policies have a chance to use the cash from their policies while they are still alive.
  • Investors: If the insured person cooperates and passes away quickly, investors can make tidy profits.
  • Insurance companies; Insurers would probably rather have policies lapsed or get cashed in for their cash value, so they do not have to pay the death benefit.
  • Former beneficiaries: This is a complex issue. If your kids would have inherited a nice sum of cash if you had not sold your policy, they might be left out. On the other hand, your adult kids might be relieved that you have a way to generate more cash for retirement.

Should you sell your life insurance for cash?

Is that it? If you are the seller, you might be wise to shop around for the best offer you can get. You may also use a life settlement broker who can do your shopping for you. You should expect to get some percentage of the death benefit. Of course, investors will not offer you 100 percent of the face value, but they will surely offer you more than the $0 you would get if you let your policy lapse, and it will also probably be more than you would get if you tried to cash your policy in with your insurer.

If you plan to sell your policy, you might be concerned about your former beneficiaries. If your adult kids would have been in line for the proceeds when you died, you might worry about their inheritance. On the other hand, they could be relieved that you have a way to generate more retirement income, so you are not a burden for them. It is also possible to only sell a portion of the death benefit, so you could still leave your kids something when you pass away.

Do Senior Life Settlement Pros Outweigh The Cons?

Typically, senior life settlement pros might outweigh the cons if you really need the cash. This is particularly true if you are having trouble paying your premiums and fear that your life insurance policy might lapse. You have to decide if the cash in your hand is worth more to you and your family than getting more money further down the road after you pass away.

You might get more information by sitting down with your family and a good financial adviser or insurance broker. While they are not the right solution for every family, viatical settlements can be a good deal if you need the cash.

Also consider the tax implications of getting a lump sum payment. Typically, life insurance proceeds from a death benefit are not taxed.

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