Well, the short answer is because you no longer need or want it. But there is more to it, according to Lisa Rehburg, a Life Settlement Expert.
What Are Life Settlements?
“Your life insurance policy is an asset that you own, just like your car or house. And, like any asset, it can be sold. You may be surprised to know that selling a life insurance policy has been legal in the United States since 1911, and is highly regulated by state insurance departments nationwide,” she said.
Policies are sold through what is called a life insurance settlement, or life settlement for short. Simply put, a life settlement is the sale of a life insurance policy to a third party (usually an investor group) for more cash.
The investor group then becomes the new owner, continues to pay the premiums, and receives the benefit. Clients receive a lump sum payment that is 3 – 5 times greater, on average, than the surrender value of the policy. And yes, even term policies can be sold.
As a refresher, term insurance provides protection/coverage for a specified period of time, providing the greatest amount of coverage for the lowest initial cost. Permanent insurance offers lifelong protection, including a death benefit while accumulating cash value tax-deferred.
Boomers Are Top Candidates
Typically, the best candidates for life insurance settlements are people over 65 with a policy face amount of at least $100,000, but this is just a guideline.
The numbers are staggering. 500,000 seniors a year lapse their life insurance policies, walking away from over $100 billion in benefit. That is a lot of value that seniors are giving up, for nothing, each year. Additionally, 90% of seniors who have let a policy lapse would have considered selling it had they known life settlements existed.
Reasons to Sell Your Life Insurance Policy
Each situation is unique, and reasons for selling a policy vary, but in each case, the person no longer needs, wants or can afford their policy. The most common situations include:
- A term policy is nearing the end of the policy term;
- One may have retired, and with mortgages paid off and kids through school, no longer needs the coverage;
- The policy may be too expensive to maintain;
- A business owner sold a business and no longer needs the “key person” coverage;
- One spouse may have passed away, leaving the other with no need for life insurance;
- A rental property or second home has been sold, leaving no need for the coverage;
- Perhaps one is looking for ways to pay for assisted living, or home care.
Why Consider a Life Settlement?
The reality is that a life settlement may be a good option if your life circumstances have changed, and you find yourself no longer needing your life insurance policy. Please consult your financial and insurance professionals when considering a life insurance settlement.
After all alternatives have been considered, and it is determined that the policy is going to be lapsed or surrendered, a life insurance settlement can offer a significantly greater value. Lisa notes that an evaluation of a life insurance policy is free of charge, and there is no obligation to take any offers received. It can’t hurt to try – but it can hurt not to!
Do you own a life insurance you no longer need or want? What are you going to do with it? Have you considered selling it through a life settlement? If you already have done that, can you say the benefit was significantly higher than letting the life policy lapse? Please share your experience!