How To Exchange Your Life Insurance For Money
Life is unpredictable and you never know when you are going to need money. And unfortunately for many, you end up in situations where you need money that you just not have. I have many senior citizen friends who run into this problem. Their social security checks stop coming and they are in desperate need for money. So what do they do? Well, some of them have came up to me and asked me if they could somehow trade their life insurance policy for some much-needed money.
And what did I tell them? Well, I could not give them a definitive yes or no. There are factors to consider when trying to exchange your life insurance for money, in a process known as life settlement. Let’s delve into these factors.
How Do I Know If I Can Do A Life Settlement?
The first qualifier is that you have to be more than 70 years old. The next qualifier is that your life insurance policy is valued at $100K at least. The third qualifier is that your expected time of death is not after the coverage expires. If you meet all three of those qualifiers, you are not quite in the clear yet. Your policy would still need to be considered profitable by the person that is looking to buy your policy or else they would not want to buy it. This means that they have to look at the exact terms of your policy and determine if there is a profit to be made by paying you for the policy and then paying the premiums until you die as well. Basically, the payout from the policy once you die will have to equal more than the amount they pay you for the policy and the combined total they pay for premiums by the time of your death. If they do determine that there is a profit to be made, then congrats, you qualify for a life settlement!
Why Would I Want To Exchange My Life Insurance Policy For Money?
Well, besides needing money in an urgent situation, there other practical situations where this type of settlement would prove beneficial. Let’s take a look.
I No Longer Need My Life Insurance
Whoever you elected to receive the payout from your policy when you die might be financially set and not need the payout anymore. No matter if it is because they have a nice high-paying job or if you already have your own private savings for them that you feel is enough. If you feel that the person who will receive the payout does not need it, why should you keep paying the premiums?
I Can’t Afford To Pay My Premiums Anymore
This is probably the most common situation. Not everyone gets to live comfortably, especially in their older days. There are plenty of medical and living expenses that one has to worry about when they are older and sometimes social security just is not enough. Not to mention, those premiums can get pretty up there in price. If you can’t pay the premiums anymore, it is a far better idea to try to get some money out of the policy through a life settlement than letting your coverage lapse and not receiving anything.
If you have life insurance, odds are that you bought it when you were younger and your life situation was much different. As we all know, life is unpredictable and plenty of things can and do happen that dramatically change your situation. Perhaps you were worried about the financial outlook of the country and you wanted to make sure your children were set. But now the economy is stable and your children are well off and it is not worth the premiums anymore. These are very common issues and many people just choose to let their coverage lapse and they lose all of the money that they have put into their policies over the years.
Who Exactly Are These “investors” That Take Part In Life Settlements?
The investors are basically companies known as life settlement providers. They are not individual investors looking to make a profit. They work together and buy thousands of profitable policies from people just like you. In fact, these investors buy in excess of 1 billion USD worth of life insurance policies each year in just the United States. And do not worry, life settlements are not some brand new institution with Wild West-esque rules. Life settlements became popular over 30 years ago and in that time, the government has gotten itself deeply involved to ensure ethical practices are employed to protect vulnerable seniors.
Where Do I Find These Life Settlement Providers?
All you have to do is a simple Google search and you will find plenty of results for life settlement providers. Make sure to take a look at your policy before doing a search and then find a provider that is shopping around for a policy that best matches yours. This increases the chances of you finding a provider who will actually buy your policy.
Some Additional Information
The higher your age is, the more profitable your policy is to the life settlement providers. Now, do not misinterpret that and think that I am telling you to wait until you are 85 to look for buyers. Especially if you need the money NOW. However, you are more likely to find a buyer the older you are. Remember that you must be over 70 to be considered eligible. I should note that many buyers will not buy policies from people any younger than 73, though.
Additionally, most buyers will pay you roughly 20 percent of the worth of your life insurance policy. Let’s say that your policy is valued at $150K. The life settlement provider that you got matched with would offer you somewhere in the ballpark of $30K to purchase your policy. If you choose to accept this offer, you will get the $30K in one payment in cash. After that, you will no longer have to pay the premiums as that burden will be transferred to the buyer.
A word of caution: Do not jump on the first offer you receive. There are sharks out there that will try to fleece seniors for their life insurance policies to make the maximum profit. Make sure to receive offers from various providers and pick the best offer. If you are not confident in your abilities to negotiate with these big companies, you can always hire a life settlement advisor or even someone to broker a deal on your behalf.
A Life Settlement Is Not Your Only Option
If you are in a situation where you just desperately need money, you do not need to go through the trials and tribulations of getting a life settlement completed. You can always try to get money out of your life insurance policy itself. Of course, the amount that you are able to get is based on your insurance provider and how much you have in the policy. That said, this is probably not an attractive option for those who no longer want to or are no longer able to pay their premiums. This is because you still have to pay your premiums when you take money out of your policy. Another alternative is to take out a loan based on your policy. This allows you to take out a cash loan equal to what your policy is valued at. Be warned though, you will have to pay this loan back and it is not interest-free. Additionally, you will still have the burden of having to pay those premiums as well. Probably not the best option for those who no longer want their policy.
One Final Bit Of Advice
I strongly recommend that you do not let your life insurance coverage lapse. You are basically burning money when you do that. Years of paying those annoying premiums. Think of what you could have done with that money instead. I understand the concerns of no longer being able to pay the premiums. But please, explore other options such as life settlements. It is better to get something out of your policy when you get sick of paying premiums instead of just letting it lapse and getting nothing. Almost 5 percent of those with life insurance policies lapse on their coverage each and every single year. I do not want you to become part of that statistic when you can instead get some money out of your unwanted policy.
Exchange Your Life Insurance For Money Conclusion
I hope this guide was able to help you navigate the tricky waters of exchanging your life insurance policy for cold hard cash. Life settlements are not a simple procedure and life settlement providers will try their best to buy your policy for the lowest amount possible. Be sure to heed my advice and shop around for the best offer and perhaps seek professional help if you are concerned about getting ripped off. Good luck!
