You would often hear more about life settlements from older Americans who were given the opportunity to sell their life insurance policies to a third party. Life settlements provide a great source of liquidity to those willing to surrender their policies or people whose needs have changed in terms of life insurance. However, as simple as it may seem, a life settlement is not for everyone. They involve high transaction costs that not everyone would be ready for, and even if you were, it’s still more likely that you wouldn’t be given a fair price. You need to understand the options of your existing policy so that you can protect yourself from any unintended consequences. You also need to familiarize yourself with what life settlements really are before deciding to sell your policy. So here is what life settlements are and how you can benefit from them.
What is a Life Settlement?
Life settlements present a solution that wasn’t there previously for people who no longer need their insurance policies. These people only had 2 options in the past, surrendering their policies for their cash value or letting their policies lapse. Now, life settlements offer these people a third option which is being able to sell their life insurance policies to other entities who are not involved in the policy. This also grants the third entity the right to obtain the death benefit. Life settlements were first implemented as a liquidity source for terminally ill patients and patients with AIDS who were not expected to live more than 2 years. However, policyholders now do not have to be terminally ill, but they tend to have a general life expectancy of 2 to 10 years.
Eligibility for a Life Settlement
A life settlement’s eligibility will vary depending on the circumstances of each individual, but some factors contribute to making you more likely to sell your life insurance policy. For example, your health or medical condition. People who attempt to sell their life insurance are usually over the age of 65 or suffer from serious medical conditions. You also need to look up the requirements depending on where you live. If you live in North Carolina, you need to look up the requirements of life settlements in North Carolina before trying to get one. The eligible policy types include convertible, universal, and whole term policies for people who are willing to give up their insurance. Most policies would have a $100000 face value.
Getting Rid of Increasing Premiums
Most insurance policies would require regular premiums paid throughout the term agreed upon by both parties. Some policies, or types of policies, however, involve paying premiums that keep increasing as the agreement progresses. Sometimes, the rates on these policies can even increase up to 8% or 12% each year. The rates can increase to a point where the policyholders no longer feel like they’re benefiting from their life insurance policies. This is why life settlements are considered a great opportunity. Instead of having to pay an increasing rate for your insurance premiums, you get to sell the policy to someone else who can pay without trouble.
Paying Less in Divorce Settlements
A life insurance settlement will benefit both you and your spouse in the unfortunate event of a divorce. You don’t have to wait until the insurance policy matures so that one spouse can receive all the benefits. After the marriage ends, this may only waste time for you both and cause further problems. Instead, you can go for a life insurance policy settlement so that you can sell the policy and earn extra money after the divorce. You can split this money between you and your spouse so that both of you would benefit rather than waiting a long time before only one of you can receive the benefits.
Being Able to Pay Off Your Debts
Life insurance settlements are a great option to avoid burdening your family with having to pay off your debts and loans later. Selling your policy provides you a large amount of cash from which you can pay for your kids’ school fees, any mortgages you still have, or any money or loans that you might have taken without paying off. Make sure you research well before selling your policy, different investors will have different valuations so it’s important that you end up with the highest offer.
A life settlement resolves the hassle of having to surrender your policy or letting it lapse. Many people invest a lot of money in their life insurance policies and the last thing they would want would be to watch their money go to waste. With a life settlement, you can give your policy to someone else who would benefit from it while earning its value in cash so that you can financially handle other areas in your life.
