It might be a month from now or 15 years, but a day will come when you will retire from your day job or from running your business. That means leaving your career and spending the rest of your golden years.
But what if you don’t want to retire? What if you still feel like you have plenty of life left to live? A life settlement would be ideal in such a scenario.
Life settlements are a way for people to get money for their life insurance policies when they no longer need them. You can use the money to fund your retirement, pay off debts, or do whatever you please. So, before you decide to retire, consider a life settlement and see how much money you could get for your policy.
What are Life Settlements?
A life settlement is a financial transaction whereby you sell your policy to a third party, which pays you a lump sum for it. The third-party will then continue paying the premiums on the policy so they can cash in when you die.
In most cases, the increase in value from when you bought the policy until now is far more than the amount they pay for it.
Who Qualifies for a Life Settlement?
Anyone with a life insurance policy can sell it for a life settlement, but certain factors will increase your chances of getting a better deal.
For verification, it’s advisable to check with a life settlement company. There are some factors to consider such as:
- Policyholder age- they usually want you to be between 65 and 80 years old.
- Policy type- they must see that the policy is an actual life insurance policy, not another kind of financial product (such as a fixed annuity).
- The health of the policyholder-. The third party might require proof of your ill-health or poor medical condition before they will buy your policy.
- Policy value- the life settlement company will want to see that your policy is worth at least $50,000.
What is the Primary Purpose of a Life Settlement Contract?
The purpose of a life settlement contract is to make sure that the third party who has bought your policy has a legal right to the death benefits. But this is not enough for them to be named as a beneficiary- they must have a written contract with you which gives them this right.
It will also state what happens if they no longer want the contract. For example, if they choose to sell it later after your death.
Benefits of a Life Settlement
There are many benefits to selling your life insurance policy. Some of them include:
- You can get the money that you might need now. Instead of waiting for your death to receive the insurance payout, you can get it immediately and use it however you’d like (for example, to fund your retirement).
- You can relieve yourself and your family of the burden of paying the premium.
- You retain control over the policy. The original owner remains in charge of it until they die and will still receive the death benefit when that happens- just not from you.
Downsides of a Life Settlement
Life settlements are not for everyone. Some of the cons include:
- You will lose your coverage- nobody else can be named a beneficiary or receive any benefit from your policy. It is now in the hands of the third party, who could decide to cancel it at any time.
- It may not be tax-deductible anymore. Even though the third party will continue paying the premiums on your policy, you no longer have a right to it. As such, you can’t deduct any of the premium payments from your taxes anymore.
What to Look for in a Life Settlement Provider?
A life settlement company is an organization that helps the policyholder to sell their life insurance policies when they are no longer needed.
The company offers professional advice, which is useful for people who don’t know how to approach this transaction. They also arrange all the necessary paperwork, and most importantly, they look for potential buyers on your behalf. You don’t have to worry about looking for one yourself.
Ask the life settlement company to send you the paperwork. Make sure to read through it carefully and ask any questions you might have before signing anything. A reputable life settlement provider should advise on any legal issues related to the contract and notify you of all upcoming premium payments.
Don’t sign any documents until you fully understand all the terms and conditions, including what percentage will be deducted for fees, and remember to let your family know about what is happening. You can’t predict how each person will react, but discussing the situation may help cut down on conflicts later.
Keep your policy active, even if you’re not the one paying for it anymore. This way, nobody can cancel or change your policy without your permission, and no other party will be able to buy it from the insurer.
Be aware of the tax implications when selling a life insurance policy through a life settlement. Your family may still be able to claim deductions on premiums paid in the year of your death.
Possible Main Issues Around Life Settlements
There are some controversies around life settlements that you need to be aware of before accepting an offer and signing any contracts. Here are some things to watch out for:
Life Settlement Brokers
There is no need for a broker to complete the transaction because you can directly deal with a third party. If someone tries to sell you their services as a life settlement broker, make sure you do your research and read reviews of them first before making any decision.
Life Settlement Companies
Don’t be fooled by companies that claim to offer quick and easy life settlements. They are usually scams. Always do your research before you accept an offer. A genuine company will send you paperwork to sign but won’t pressure you into signing anything. Claims that they can offer fast, hassle-free transactions are most likely false.
Terms of the Settlement
Make sure you fully understand all the terms and conditions of the settlement, including when you will receive the money, what percentage they will take out for their fees, and more. If there are any unclear terms, ask the company to explain them before you sign.
To Sum It Up
There are many reasons that people choose to sell their life insurance policies for a life settlement. It’s an option worth looking into, whether it’s because they can’t afford their premiums or want some extra money.
The financial benefits can outweigh the possible issues but do your research first to find a life settlement company that has good reviews and is trustworthy.