Many older adults have life insurance that they no longer need. With children grown and no debt, the purpose for which the insurance was acquired no longer exists. Life insurance is an asset that many older adults have. According to Vital Life, 57 percent of Americans aged 65 and older have life insurance policies. In 2019, life insurance companies paid beneficiaries $78.4 billion and supplied $88.1 billion in annuity benefits, per Forbes.

Those who no longer need their life insurance should consider selling their life insurance policies, allowing them to use a portion of the policy’s value to cover their expenses.

How Life Settlements Work

When you sell your life insurance policy, you can receive a life settlement. This allows you to obtain money to cover your expenses. The payment will be less than the full amount of the cash benefit. The amount varies, notes George Vasiliadis, an attorney with the law firm of Vasiliadis Pappas Associates “depending upon a number of factors, all of which enable the prospective buyer to assess the “longevity risk”, that is, the risk that the insured will live too long”.

In return for the payment, an individual or company becomes the new policy owner. The new owner is responsible for paying all premiums and receives the full payment upon your death. Once you sell your life insurance, you are no longer responsible for paying the premium, but any intended beneficiaries can no longer benefit from the policy.

Once you have entered into an agreement in exchange for a life settlement, you no longer own the policy, and your loved ones will not be able to obtain payment when you pass away.

Benefits From Selling Life Insurance for a Life Settlement

Obtaining a life settlement allows you to capitalize on your life insurance policy now, helping you pay for your expenses, such as medical bills and long-term care.

If you are at risk of lapsing on payments, selling the policy allows you to avoid forfeiting it entirely. When you receive a life settlement, you will get more than if your policy lapsed or you surrendered it. Keep in mind, however, that many policies have grace periods for lapses in payment. Before giving up your life insurance policy, check with the policyholder to find out how much time you have to pay your premium before losing coverage.

Considerations When Selling Your Life Insurance Policy

While selling your life insurance could help you cover your expenses, it may not be the best choice for everyone. Your age, health, and the terms of your policy can all affect how much you will receive from a life settlement. Consider the following before making a decision:

  • Before agreeing to a life settlement, contact your insurer to learn about all of your options under your policy.
  • Speak with a life settlement broker or life settlement provider. The broker can help you shop around and find the best settlement offer. Brokers typically charge 8 percent and must disclose their fees upfront. You may want to ensure that the broker has a license in your state.
  • Consider alternatives to a life settlement, such as taking out a reverse mortgage on your home or using the cash value of your insurance policy as security for a loan.
  • Take time to review your outstanding debts. Creditors may attempt to take your life settlement.
  • Speak to a tax professional about the tax consequences of acquiring a life settlement. You will likely have to pay taxes on the amount you receive.
  • Take into account how the life settlement could affect whether you are eligible for government benefits, such as Medicaid. The settlement could constitute an asset that disqualifies you.
  • The individuals who would have otherwise benefited from your life insurance policy may need to sign off on your life settlement. This is a requirement of some life settlement providers.

Consult With Your Attorney

The lawyers at Vasiliadis Pappas Associates have advised many clients regarding various options available for disposition of life insurance policies, including life settlements. Call us. We can help!