As costs continue to rise, especially for health care, seniors may find that tapping the cash value of a whole life insurance policy could solve a number of financial problems.
A study of savings data from the Federal Reserve, compiled by the Associated Press and discussed in Insurance News Net’s article, “5 Key Questions Asked About Selling a Life Insurance Policy for Cash,” points to an entire generation of seniors facing severe financial challenges in retirement. Most retirees are just getting by and don’t have any emergency funds for unexpected expenses. The study expects the situation to become worse, as 35% of households in prime earning years have nothing—zero!—set aside in retirement accounts. One option that seniors may want to consider is: a life settlement.
Many retirees are just getting by without a financial cushion to pay for emergency expenses. According to Insurance News Net’s recent article, “5 Key Questions Asked About Selling a Life Insurance Policy for Cash,” the ongoing erosion of assets threatens an entire generation of seniors currently having trouble paying retirement costs. Unfortunately, it might be even worse news for baby boomers and Generation Xers. An Associated Press analysis of savings data from the Federal Reserve found that 35% of households in their prime earning years have saved nothing in a retirement account and have no access to a traditional pension. Therefore, for seniors facing a financial crisis or those wanting to shore up their emergency funds, a life settlement may be a necessary option.
A life settlement, also termed “a life insurance settlement,” is a financial transaction that allows a senior to sell an existing life insurance policy for immediate cash. A retiree could, for instance, sell a policy for a percentage of the overall death benefit. Even though many see life insurance as a regular expense, it’s actually an asset with an inherent value that can be sold to a life settlement company.
Most people purchase life insurance for a specific reason, like providing for a surviving spouse and family. However, over time a person’s need for life insurance may change. In such situations, a senior may no longer need the life insurance, even though it served a valuable purpose for years. The cost of life insurance may also increase over time and paying the premiums may become much harder to manage. In these instances, it may make sense to consider a life settlement by selling an existing life insurance policy.
Most individuals who pursue a life settlement are in their mid-to-late 70s and typically not in great health. They have an existing whole life or universal life policy … or a term policy that is near the end of the term (which can be converted). The face value of the insurance policy is a big factor in determining the offer. Life settlement companies typically want policies in excess of $500,000. However, with a new transaction known as a retained death benefit, a senior also may be able to sell a portion of a life insurance policy and keep some coverage intact for beneficiaries.
Every life settlement transaction is different and depends on a number of factors. You’ll want to find your original documents for the insurance policy, and review it with an estate planning attorney to discuss how it fits in with your estate plan. The insurance company will review the face value of the policy, the premiums, your medical history and life expectancy. Don’t expect to get rich: generally policy owners receive offers that are between 15% to 20% of the face value of the policy. But in a severe financial crisis, this may be a necessary option.
Reference: Insurance News Net (December 28. 2016) “5 Key Questions Asked About Selling a Life Insurance Policy for Cash”