Selling a life insurance policy is a big decision, as it’s essential to consider your options. Asking some questions to either your life settlement provider or broker can help you find out if this is the right decision for your situation.
Here are a few questions to always ask if you weigh the pros and cons of selling your life insurance policy:
What Fees Will I Need to Pay?
A broker will charge a fixed commission for completing the sale of your life insurance policy. You may also need to pay to acquire your medical records. Asking about these transaction costs ahead of time can help you understand how much you will need to pay.
Who Will Purchase My Policy?
Many large investment firms often purchase life settlements. It’s also possible to sell your life insurance policy to one person or a small group of investors. However, these sales are considered riskier compared to a large firm.
What Will Happen Once My Policy is Sold?
Sometimes a buyer will purchase your policy and resell it to other investors. You may not even know who will own your life insurance policy if it’s sold multiple times, as you will need to make sure you are comfortable with such a situation.
How Will You Protect My Privacy?
You will need to give out personal information during a life settlement, as it’s a good idea to ask the company how they will keep your information confidential. You can also ask who will access this data throughout the sales process.
Here is an overview of the different pros and cons of a life settlement.
Pros
The life settlement payment is greater than the cash surrender value of your policy.
The cash payout of a life settlement is more than the accelerated death benefit.
You can use the payout in any way you want.
Cons
Your beneficiaries won’t receive a payout once you die unless you keep a part of the death benefit.
You may not qualify for Medicaid due to the payout.
Proceeds from a life settlement will most likely be taxed.
Other Options Besides Life Settlements
A life settlement can help you receive the cash needed to cover medical or other expenses. You can also acquire the market value of an asset you have but don’t need any longer. However, this is only sometimes an ideal option for some people. You can also consider other alternatives besides selling your life insurance.
These alternatives include:
- No longer pay your premiums and let your policy lapse
- Surrender your policy for the cash value while subtracting any surrender charge
- Use the accelerated death benefit to receive part of the death benefit amount if you have a terminal illness
- Choose to borrow from the cash value of your policy
- Use dividends or the cash value from your life insurance policy to pay premiums if you need assistance with covering the costs of your insurance and if you want to stay with your policy
- Convert a permanent life policy to a hybrid approach that includes a long-term care benefit. You will still need to qualify for a new policy, as this won’t likely be an option if you are diagnosed with a chronic health condition
Asking for a policy appraisal is always a good idea. Our proprietary appraisal process uses a mix of current industry pricing methodologies and 30-plus years of experience. We provide a fast and efficient way to identify the secondary market value of existing life insurance policies.
Closing Thoughts
Learning about your life settlement options is crucial if you contact your life insurance company about ending your policy. Be warned, only six states force life insurance providers to notify policy owners of alternative options besides letting a policy lapse or surrendering a policy. Finding your options can help you make the best choice for your situation.
