Life Insurance Settlements
From LoveToKnow Insurance
If you have a whole or permanent life insurance policy, you may have the option of converting your future life insurance settlement into cash now. The lump sum payment can then be used to pay off debts, invest in your children's college educations, or to purchase those luxuries you always promised yourself that you would enjoy during that illusive "some day".
Permanent or Whole Life Insurance
Permanent or whole life insurance policies cover the "whole" term of your life, provided you continue to pay your premiums. The longer you have the policy, the greater the cash value you accrue. Some policies even allow you to pay more than your premium amount, which is invested along with your premium into the stock market, theoretically ensuring you an even greater return on your money.
About Life Insurance Settlements
When you have permanent life insurance, you may have the option of converting it into a type of structured settlement. This means that instead of waiting for your policy to mature or until your death, you can receive cash from the accumulated principal immediately.
From Life Insurance to Cash
When you convert life insurance into a cash payment, what you are actually doing is selling the investment that your policy represents for cash to a company at its present day or future value. In other words, if you have whole life insurance, you can convert its current value into cash by selling it to a buyer.
While some insurance companies may be willing to covert your policy into cash, you may be able to get more cash by selling your policy to a buyer. This is because a buyer may be more interested in the future cash value of your policy, while an insurance company is generally only willing to pay you what your policy is worth today.
If you decide a buyer may be the best answer to your cash flow problems, make sure to shop around. Each buyer is apt to calculate the future value of your policy different; therefore, your life insurance settlement is worth a different amount to each buyer.
Keep in Mind
You may be taxed on cash you received from life insurance settlements. Rules on this vary based on how the cash is used. For example, selling your policy to pay for college tuition may decrease or eliminate your tax liability.
Drawbacks
While life insurance settlements may sound like a great idea, especially if you are a senior who has invested in a policy for years and have paid off your home and all your debts, there are drawbacks.
- Many opponents argue that elders are spending their children's inheritance, leaving behind very little estate.
- The value of the policy may be rebated so drastically that you end up getting $500,000 in cash for a $1 million policy.
- Seedy characters, such as the mob may be behind the purchase of your policy and may put a contract out on your life so they can collect on the policy sooner.
- If the insurance company challenges the sale of the policy and wins, the buyer may sue the estate for any monies paid out plus damages.
To ensure you do not fall victim to a scam, deal with buyers who are licensed within your state to purchase life insurance settlements.
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In Conclusion
If you need cash now, a life insurance settlement may be best way to get it. But, as with any other asset, you want to get the best value. To that end, investigate the possibilities and compare the payment offers of a number of buyers before settling with one and don't forget to see what the insurance company itself can do about paying you cash for your policy.
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