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Life Insurance Settlements and Other Options

There are certain situations in which some find themselves asking, “Do I really need life insurance right now?” Whether you’ve reached an age when it doesn’t make sense to continue paying into your policy any longer, or if you’re having a hard time keeping up with the payments and could really use that extra cash monthly, considering closing out your current life insurance policy is an option that many ponder.  I recently read an article in The Ledger, (a newspaper out of Lakeland, Florida) that addressed this very issue.  Author Jim Miller tackled this situation in his piece, “Life Settlement an Option to Consider,” where he concisely explained the ins and outs of life settlements as well as offering some alternative options.

If you’re the owner of a life insurance policy with a face value of at least $250,000 and are over the age of 65, a life settlement may be appropriate for you.  A life settlement is the sale of a current policy to a third-party company, who will often pay two or three times more than you’d receive if you surrendered the policy, but less than its net death benefit.  The third-party company then takes over the premium payments as the new owner and collects the death benefit when you pass away.  Miller suggests doing a little leg work, however, before jumping into this situation.  He recommends shopping around to find the provider who will pay you the most money, while keeping their fees to a minimum.  The tax implications in this process are also a bit tricky, so consulting with a tax advisor is recommended.  Eligibility for federal programs, such as Medicaid and food stamps, may also be effected by a life settlement, so be aware.  Finally, the author suggests choosing a licensed life settlement firm in your state or a member of Life Insurance Settlement Association (LISA) when selecting who you’re going to sell to.  These settlements are not regulated in every state and there are people looking to take advantage of that fact.

Sometimes, a life settlement is not the best choice, but if you still need some extra cash, there are other options.  Some policies have a cash value which is able to be withdrawn for immediate needs.  This option allows you the convenience of extra income while keeping the policy intact for your beneficiaries.  Additionally, some insurance companies and banks allow you to use your life insurance policy to secure a loan if need be.  Another option is to convert the cash value of your policy to an immediate annuity, which will provide regular payments for a fixed time period.  If you are terminally ill, some policies will pay out a part of the death benefit prematurely, in what’s known as an accelerated benefit.  If you’re simply struggling to keep up with the monthly premium, consider lowering your death benefit amount, which will often reduce your payments.  Different life situations surely bring about the want or desire to make changes in your life insurance needs.  Your insurance agent can discuss all of these options with you and help you decide if any of them are suitable for your individual requirements.

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