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Don’t cancel your
life insurance policy without reading this first! Depending on your
situation, you may be losing tens of thousands of dollars if you do.
If you have a life insurance policy that you no longer can afford or
need, consider selling the policy. Read on to find out how.
Lots of investors
have life insurance. Most people think the only way to collect on a
life insurance policy is to die first. But there’s another way to
benefit financially from a policy while you’re still alive and
kicking. It’s called a life settlement.
There are a lot of
companies that buy life insurance policies. These companies aren’t
buying policies to do you a favor; they buy them as an investment.
When they buy a
policy, they pay you up front and take over payment of the premiums.
The amount they pay will vary on several factors, but usually
averages to about 15% of your policy’s face value. You benefit by
getting more money out of your policy than if you cancelled it or
surrendered it.
Not every life
insurance policy can be sold. In general, the policy holder usually
has to be age 55 or older with a life expectancy between 2 and 12
years. The insurance policy has to be transferable. It must be a
universal life, variable universal life, second-to-die or term life
policy. Face amounts need to be at least $100,000.
Several changes in
your life could cause you to consider a life settlement. Estate tax
law revisions might mean your heirs no longer face a hefty tax bill
at your death. Perhaps your universal life premiums have become too
expensive for you, or maybe you no longer have to worry about
replacing your income.
In these
situations, you have several options. You can view your policy as an
investment and keep it. You may be able to lower your amount of
coverage. You can let it lapse or surrender it for its cash
surrender value. But sometimes a life settlement is a better
solution.
For instance,
because of estate tax law changes, a lady in her late eighties no
longer needed her universal life insurance policy. She didn’t want
to keep paying the premiums on her $600,000 policy. Instead of
canceling the policy for the $518 cash surrender value, she sold it
instead for $80,000.
A recently-retired
gentleman had a universal life policy for $1,000,000. He became very
ill and was having trouble paying his medical bills. He passed on
the $2,128 cash surrender value and collected just over $100,000
through a life settlement instead. This allowed him to pay for the
medical care he desperately needed.
Keep in mind,
though, that these people received far less than if they held the
policy until death.
For those
considering a life settlement, there are a few words of caution. Be
aware that the commissions on life settlements can be as high as
33%. These commissions are negotiated between the advisor and the
purchasing company, but are not always disclosed to the client. If
your state doesn’t require such notification, make sure your advisor
clearly states their cut.
Have your advisor
show you offers from several companies. You will want to know the
gross offer, the commission and the net amount you will receive. An
advisor may recommend a company based on which pays them more, not
you.
Beware of advisors
who approach you about life settlements. In this case, it’s far
better to be the pursuer than the pursued.
There is a big
difference between selling your policy and buying someone else’s
policy as an investment. I don’t believe any small investor should
buy someone else’s life insurance policy as an investment. These
were sold as ‘viaticals’ over the last several years and many took
the bait to their regret. Don’t buy a viatical!
Life settlements
aren’t for everyone. You need to make sure your life insurance needs
are properly met and you’ve carefully considered all the pros and
cons before making your decision. But in some circumstances, a life
settlement can be a wonderful way to dip into the pot of gold
sitting in your life insurance policy.
Have a financial
question? Send me an email and I’ll personally respond, free of
charge. Go to http://www.guardingyourwealth.com and click on ‘Ask
Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide.
When Your Life
Insurance Is A Pot Of Gold
Don’t cancel your life insurance policy without reading this first!
Depending on your situation, you may be losing tens of thousands of
dollars if you do. If you have a life insurance policy that you no
longer can afford or need, consider selling the policy. Read on to
find out how.
Lots of investors have life insurance. Most people think the only
way to collect on a life insurance policy is to die first. But
there’s another way to benefit financially from a policy while
you’re still alive and kicking. It’s called a life settlement.
There are a lot of companies that buy life insurance policies. These
companies aren’t buying policies to do you a favor; they buy them as
an investment.
When they buy a policy, they pay you up front and take over payment
of the premiums. The amount they pay will vary on several factors,
but usually averages to about 15% of your policy’s face value. You
benefit by getting more money out of your policy than if you
cancelled it or surrendered it.
Not every life insurance policy can be sold. In general, the policy
holder usually has to be age 55 or older with a life expectancy
between 2 and 12 years. The insurance policy has to be transferable.
It must be a universal life, variable universal life, second-to-die
or term life policy. Face amounts need to be at least $100,000.
Several changes in your life could cause you to consider a life
settlement. Estate tax law revisions might mean your heirs no longer
face a hefty tax bill at your death. Perhaps your universal life
premiums have become too expensive for you, or maybe you no longer
have to worry about replacing your income.
In these situations, you have several options. You can view your
policy as an investment and keep it. You may be able to lower your
amount of coverage. You can let it lapse or surrender it for its
cash surrender value. But sometimes a life settlement is a better
solution.
For instance, because of estate tax law changes, a lady in her late
eighties no longer needed her universal life insurance policy. She
didn’t want to keep paying the premiums on her $600,000 policy.
Instead of canceling the policy for the $518 cash surrender value,
she sold it instead for $80,000.
A recently-retired gentleman had a universal life policy for
$1,000,000. He became very ill and was having trouble paying his
medical bills. He passed on the $2,128 cash surrender value and
collected just over $100,000 through a life settlement instead. This
allowed him to pay for the medical care he desperately needed.
Keep in mind, though, that these people received far less than if
they held the policy until death.
For those considering a life settlement, there are a few words of
caution. Be aware that the commissions on life settlements can be as
high as 33%. These commissions are negotiated between the advisor
and the purchasing company, but are not always disclosed to the
client. If your state doesn’t require such notification, make sure
your advisor clearly states their cut.
Have your advisor show you offers from several companies. You will
want to know the gross offer, the commission and the net amount you
will receive. An advisor may recommend a company based on which pays
them more, not you.
Beware of advisors who approach you about life settlements. In this
case, it’s far better to be the pursuer than the pursued.
There is a big difference between selling your policy and buying
someone else’s policy as an investment. I don’t believe any small
investor should buy someone else’s life insurance policy as an
investment. These were sold as ‘viaticals’ over the last several
years and many took the bait to their regret. Don’t buy a viatical!
Life settlements aren’t for everyone. You need to make sure your
life insurance needs are properly met and you’ve carefully
considered all the pros and cons before making your decision. But in
some circumstances, a life settlement can be a wonderful way to dip
into the pot of gold sitting in your life insurance policy.
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to http://www.guardingyourwealth.com and
click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
