If you haven’t heard about them by now, you might be in a position to consider whether making a life settlement with your life insurance policy is really a good idea? Okay, but what is a life settlement, you ask. Well, here it is in a nutshell. Imagine you find yourself short on money. Say you have life insurance policy that you no longer need. One option available to you is to sell the policy to a third party for cash. These transactions are called life settlements.
At present, a whole life insurance business has grown up around the practice of conducting life settlements. According to one firm’s numbers, there were polices valued in excess of $10 billion were sold in 2009. It’s a pretty big business at this point. But, you still don’t know if doing a life settlement is a smart idea.
Well, in theory, there is nothing wrong with them. What you’re doing is selling that future payout in exchange for a one-time, immediate cash payout. Once you die, the individual or company who ended up buying your policy will get the insurance payout. Yet, selling a policy really isn’t as simple as you might think. If you’ve been thinking about doing it, you need to spend some researching the option before committing to a life settlement.
There is a lot of speculation about whether these settlements are smart options or not from those in the financial sector. It’s not something to enter into lightly. There are some questions about how stable the market for life settlements really is, and whether you can feel confident about the value of a given policy under these conditions.
Of course, when you consider the economic troubles plaguing the country you can see why the life settlement business has been enjoying a small boom due to an overwhelming buyer’s market. Average returns on investments have been around 10 to 12% annually – if you can get that kind of percentage.
Others cite the hefty fees and expenses associated with pursuing a life settlement. Broker’s fees, the buyer’s broker, paperwork, calculating estimates of life expectancy for policyholders, etc. The buyer, naturally, will be taking on the bulk of the costs associated with paying future premiums.
So, should you sell your life insurance policy?
It is certainly the case that selling one makes sense if there is a legitimate financial need and all other sources have been exhausted, or the family cannot afford to maintain the premiums. I really is something you have to investigate before taking the plunge. There is no reason to do it if you can think of better ways to take care of financial issues.