It might be time to sell your life insurance policy

Should Retirees Consider a Life Settlement?

by Gary Foreman


Related Articles

Slideshow: Reducing Expenses After Retirement

What Does Retirement Look Like to You?

A Tool to Determine the Best Time to Take Social Security Benefits

Determine the Best Retirement Age for You

Could something called a life settlement help boost your retirement savings? Many retirees are considering a life settlement in an effort to supplement their investible assets.

And, no wonder. In 2014, the average Social Security benefit was about $1,300. According to the Social Security Administration for 22% of married and 47% of singles, that's 90% or more of their retirement income.

A recent survey by LearnVest and Chase Blueprint stated "Women feel they need $1.3 million, and men $1.7 million, to retire comfortably. The average amount saved for retirement among women is approximately $150,000; among men, the amount saved is approximately $220,000."

To help us understand what life settlements are and how they work, we approached Ken Kelly. Mr. Kelly is CEO of Windsor Life Settlements.

Q. What is a life settlement?

Mr. Kelly: Just like any other asset, a life insurance policy can be sold by one party to another for cash. So very simply, a life settlement is a transaction in which a life insurance policy is sold by one party to another.

The purchasing party is an investor willing to pay the policy holder a lump sum to become the beneficiary of the policy, while assuming responsibility for paying future premiums.

As part of the purchase transaction, the investor assumes responsibility for paying all future premiums required to keep the policy enforce. When the insured passes away, the investor receives the death benefit.

Q. Why would I want to sell my life insurance benefits?

Mr. Kelly: Life settlements allow policy holders to convert their costly policies into cash. People seek out life settlements for many reasons. A life settlement offers up front value on a policy that may no longer seem affordable. Many people will seek out a life settlement because they feel they can no longer pay the premiums on their life insurance policies.

A life settlement will offer policy holders a value many times in excess of the policy's surrender value.

Other times, people are looking to increase the value of their investment portfolios and view their life insurance policies as assets to be used for maximum advantage. As the value of a life insurance policy changes, it may be more advantageous to sell the policy than let it mature. A life settlement (or senior settlement) allows policy holders the ability to maximize the value of their policy over the life of the investment.

It may be as simple as needing extra funds to pay for services like extended care or nursing home costs or to pay for the ever-increasing costs of prescription medications and/or medical equipment.


Q. How does a life settlement compare to a 'surrender value' on my policy?

Mr. Kelly: For the right policies, a life settlement can provide a monetary value far in excess of the surrender value.

Q. Are all types of life insurance policies eligible?

Mr. Kelly: The majority of policies that are transacted as life settlements are Universal Life policies. Convertible Term, Joint Survivor and Whole Life policies are also eligible for life settlement.

Q. Is there a way to estimate what my policy might be worth?

Mr. Kelly: There is no set formula to estimate a policy's value without having it evaluated for a life settlement. The factors that affect a policy's value are age of the insured, size of the death benefit, annual premium, and current health status of the insured. For example, if we have two insureds who both have a $250,000 policy with comparable annual premiums, but one insured is perfectly healthy and the other insured has significant health impairments, the insured who has health impairments will receive a higher offer than the healthy insured. The perfectly healthy insured may not receive any offers at all for his policy.

Will you leave
thousands of dollars on the table
by taking Social Security
at the wrong time? Find out.

Q. Who should not consider a life settlement?

Mr. Kelly: In the event an Insured is faced with a terminal diagnosis, it is best to determine whether the policy contains an "Accelerated Death Benefit" provision. Such a provision may allow an insured to receive a portion of the death benefit while living. This benefit is included in most Term policies and also some Universal Life policies. Check with your insurance carrier to be sure.

Could a life settlement work for you? You'll need to consider it carefully and talk with someone who can put a value on your life insurance policy.


Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.

Take the Next Step:

  • Visit here for more on Life Settlements.
  • Two reasons to collect social security benefits as soon as possible.
  • Subscribe to After 50 Finances. You've learned how to work smarter, not harder. This weekly newsletter is dedicated to people just like you. Subscribers get a FREE copy of our After 50 Finances Pre-Retirement Checklist, a list of everything you need to do to be ready for retirement.
  • Determine if debt could derail your retirement and what you can do about it now. Our checklist can help you. Afterall, one of the most important ingredients for a comfortable retirement is to be debt free when you retire.
  • Find information geared specifically for Baby Boomers in The Dollar Stretcher section dedicated to your financial issues. If you're over 50 your financial needs are different. And so are your questions.

Share your thoughts about this article with the editor.

Stay Connected with TDS




Social Security Choices

Newsmax








You've learned how to work smarter, not harder.

After 50 Finances is a weekly newsletter dedicated to people just like you.

Retirement Checklist
Subscribe

And get a free copy of the After 50 Finances Pre-Retirement Checklist. Everything you need to do to be ready for retirement!

Your Email:



View the TDS Privacy Policy.

Get Out of Debt