Don’t Cash In Your Life Insurance Before Knowing Your Options

Your life insurance is an asset and may have more value than what your life insurance company will lead you to believe.  Life changes and so do your needs, however if you are considering letting your life insurance policy lapse or turning it in to the insurance company for the cash surrender value, know that you may be leaving money on the table if you don’t explore all of your options.

There is a new financial market for seniors aged 65 and older who own life insurance policies. Called the Life Settlements Market policy owners can receive 5 to 8 times more than the current cash surrender value for their life insurance on average through a Life Settlement transaction.  All you need to do is inquire and ask for a free fair market valuation of your policy.

Cash In Life Insurance vs. Fair Market Value?

If your life insurance premiums are getting too expensive or you just simply do not need the coverage anymore, you owe it to yourself to get top dollar for that policy you paid into for so many years.  To learn more and get a free no obligation quote for selling your life insurance policy contact us here at Direct Life Settlements and find out what your life insurance policy is truly worth in a free market.

Contact Us Right Now To Get More Before Your Cash In Your Policy

Don’t Cash In Your Life Insurance Before Knowing Your Options
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Sell your Life Insurance Policy for Cash – Don’t Let it Lapse

Traditionally, purchasing a life insurance policy meant that if after a time your situation or circumstances changed and you found your life insurance policy was no longer needed or was too expensive, you could cancel the policy and receive a lump sum of cash for the surrender value at most. These days however, an increasing number of companies are recognizing the value in purchasing life insurance policies as an investment vehicle and are paying top dollar. In other words, for those who qualify, you can choose to sell your existing policy to a number of competitive bidders to cash in on this growing trend and the value of your life insurance in a Life Settlement transaction.

There are many benefits to be gained from selling your life insurance policy rather than letting the policy lapse or turning it in for the cash surrender value. For example; if you are unable to pay your premiums, your policy will lapse and no benefit is received. Thankfully, you can avoid this situation altogether by selling your policy to the highest bidder. Before you can make a sound decision regarding you financial matters, you have to understand the difference between the fair market value and the surrender value for your policy.

55% of Seniors Have Let A Life Insurance Policy Lapse

The difference between what a policy holder could receive for surrendering their policy versus the fair market value for their policy is astounding. For example, a study conducted in 2002 by the Wharton School at the University of Pennsylvania found that while the surrender value for average policy holders amounted to a total of 93.4 million dollars, the fair market value for policy holders amounted to 336.3 million dollars combined. This amounts to large difference between the cash value and market value of a policy.

If you find you can’t afford to pay your premiums anymore, you may want to consider selling your policy for cash as opposed to letting it lapse and receiving nothing. Many times the fair market value for a life insurance policy is oftentimes higher than the surrender value, this makes selling your policy a viable and economical choice. Since many people are unaware of the secondary market for their life insurance policy, they are under the mistaken impression that the surrender value offers greater benefit to them. Unfortunately, this is not always the case.

88% of Life Insurance Policies Never Result in a Payout

It used to be that policy owners only had one way to determine the value of their life insurance, which amounted to the surrender value of their policy carrier. The problem with this comes into play when you realize the amount doesn’t take into account the total amount of premiums paid into the policy or the value others could be willing to pay for your policy. Thus, the surrender value of the policy is often much lower than what you could sell your policy for in the Life Settlement market.

In short, for those who are no longer able to afford their current policy your best bet may be to sell your life insurance policy for the fair market value. This way, you won’t have to keep paying into a policy that you no longer need, or can’t afford and you’ll be sure to get your money’s worth from companies willing to pay for your life insurance policy.

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Sell your Life Insurance Policy for Cash – Don’t Let it Lapse
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Use Life Insurance To Replenish Lost Savings

The recession took a heavy toll on the savings of some retirees and those soon-to-be. Because they haven’t the years left to rebuild what they’ve lost, some are looking to replenish some of their losses with their life insurance policies. Should you?

If your retirement plans have taken a hit from market downturns, you have a variety of options to help improve your circumstance. Delaying retirement will increase your Social Security benefits. This, along with contributing more to your savings while you remain working can significantly improve your eventual retirement income.

If there’s more you need, you can look to the value of your life insurance policy. You can get cash from your policy several ways:

* Take a loan against your policy’s death benefit

* Surrender your policy to your insurance company for its value

* Sell your policy to a third party as a life insurance settlement

If you don’t or can’t repay your policy loan before your die, the death benefit will be reduced by what you still owe on it. But, again, you may still have some death benefit for your offspring.

If you consider surrendering your policy, check first with your agent to establish how much you’ll receive. Unfortunately, surrendering your policy for value gives you less, perhaps substantially less, than you could get by selling it – if you’re the right age and the policy death benefit is substantial.

The best candidates for a life settlement are now people in their 70s or older who have a life insurance policy valued at $500,000 or more that they no longer need. Depending on age, gender and health, the average payout is slightly less than 20 percent of the policy’s death benefit; but that’s still three or four times more than they’d get if they simply surrendered their policies to the insurer.

If you do decide to sell, seek out a life settlement provider who must be licensed by the state. Don’t be pressured, and understand the terms of the sale. Ask of your selling agent for proof of every offer made on your insurance policy and ask what his commission will be. He should represent only you and not the buyer of your policy at the same time. Some states will even allow you to void your signed agreement if you change your mind within a month of signing or 2 weeks from receiving the proceeds – whichever comes first.

*Terminally ill and need cash:

Of course, if a doctor’s prognosis show that you are terminally ill and expected to die within 2 years, your policy may allow you to accelerate your policy’s death benefit. You may need it to pay medical bills resulting from your illness.

Use Life Insurance To Replenish Lost Savings
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Should You Keep Paying Life Insurance Premiums

Does continuing to pay premiums on life insurance policies make sense when retired or facing retirement? With children grown and other pressures for income, the premium payment is a target for budgeting.

Is this wise? Like so many other question the answer is “It Depends!”

· First, is the insurance a “Term” policy (with no cash value build up)? Or is it a “Permanent” policy with a cash surrender value?

· Even if former needs for insurance no longer exist, are there still needs (perhaps to care for a surviving spouse or other dependent) where keeping the death benefit is important?

· There may be value in the life insurance where, even if you do not want to continue to pay premiums, other ways of reducing that also preserve values you paid for all these years.

Even a simple Term Policy may have useful “conversion” features. They may be valuable enough to justify continuing the premiums.

A permanent policy continues to build its cash surrender value if premiums continue. While policy expenses reduce the cash buildup, the overall growth rates might still be worthwhile; especially if the policy is one of long-standing.

Stopping premiums allows the policy to lapse. That means the insurance company keeps everything you put into the policy up to that time; and does not have to pay a death benefit. That is a major windfall of the type that many insurance companies often enjoy. You and your family get nothing. And, if you have any existing policy loans, there might be “phantom” taxable income to pay tax on that you did not expect.

A Better Way Is to Do Some Proper Planning

Even though grown children may no longer depend on you, the death benefit may be important to a surviving spouse. Will they have enough income when you no longer bring one in; from work, from social security, from a pension? You may have other dependents whose needs you should also consider.

There are some benefits about keeping your policy that affect a good answer.

Tax-free retirement income might be available with life insurance cash surrender values. Any retiree will like that. Stopping the premiums saves future outlays, but potentially at the expense of a valuable income source when people need it most. Many times this income source could last the rest of the retiree’s life; and that of a spouse. Added to social security, a more comfortable retirement can happen.

Life settlement, selling the policy to a third-party, can raise cash, and stop your premium payments. But the new owner gets the death benefit. That makes no sense unless the price paid for the policy is more than the cash the policy makes available to the insured. Also, it seems the market for “Life Settlement” transactions has limited use. It is mainly for policyholders close to the end of life from advanced age or illness. So, likely Life Settlement does not offer a “checklist” item for exiting a policy contract.

What to Do?

Have your policy evaluated by a qualified life insurance professional. Find people with good reputations no matter what their profession. But, make sure they are expert in what you are asking them about. Not every financial person understands the internal workings of life insurance contracts and value buildup.

Can you reduce or end premiums and still keep policy values? Yes. For example, the retiree might use the cash surrender value to convert to a reduced paid up whole life policy. While this creates a lesser death benefit for the family; the values you build up are not wasted and your premiums stop too.

Newer policies offer values the retiree may want. For example, some life insurance contracts offer benefits to pay for Long-Term care needs. An excellent company offers the following, assuming the retiree is insurable. Do a tax free exchange of an existing policy (like a real estate like kind exchange) into a single premium policy. It is liquid, pays 3% a year, provides a decent death benefit; and use of one of the better long-term care policies in the industry.

There Are Many More Examples

Retirees may rightly want to save the cash by discontinuing premium payments on a long held policy. The retiree first should consider ways to protect the values built up over the years. Plus, there may be reasons continuing the policy and keeping the death benefit is still important after all.

Should You Keep Paying Life Insurance Premiums
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What is a Life Insurance Settlement?

A life settlement is the financial transaction in which a senior citizen sells their unwanted or unneeded life insurance policy to an institutional third party for more then its cash surrender value. The insured receives cash now for the policy. The institutional investor, or purchaser becomes the new owner and beneficiary of the policy. The purchaser will continue to pay the premiums from the time of the sale to the insured passes away. Upon the death of the insured, the purchaser will collect the benefit.

Life settlements are available to all senior citizens over the age of 65 with an inforce insurance policy, usually with a death benefit of over $250,000. In every life settlement transaction the insured’s life expectancy will be obtained using underwriters who use the insured’s medical records and mortality tables. Based on these life expectancies and the cost of the insurance per year to keep the policy inforce to age 100, the institutional investors will make offers on the policy that are always above the cash surrender value of the policy but less then the death benefit.

Should the insured accept the offer from the purchaser, the insured will sign over the ownership and beneficial interest in the policy for the agreed upon purchase price. The money received by the insured for the sale of an insurance policy is tax free up to the amount of premiums paid into the policy to date by the insured. The excess is considered long term capital gains.

For example, a male insured, age 70, in average health recently had a $750,000 universal life policy with a cash surrender value of $5,000,which he took out 20 years ago as a protection for his children’s college educations should he pass away. As his children are now grown, he longer needs the coverage. An institutional buyer recently purchased this unneeded policy for $77,700 or $72,700 more then its surrender value. Clients can expect offers, such as this one which are substantially larger then the policies surrender value.

A life settlement is not only valuable for seniors who no longer need or want their policy, but also for insured’s whose policy has become cost prohibitive but the need for coverage still exists. Seniors can utilize life settlements by selling their existing, cost prohibitive policy and use the money from the purchase to buy a new policy of the same death benefit but with extra cash in the policy the premiums will be lower. This is called insurance re-finance.

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What is a Life Insurance Settlement?
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What is the Cash Surrender Value of Life Insurance?

What is the cash surrender value of life insurance?

The cash surrender value of a life insurance policy is the amount of money your insurance carrier will pay out in the event you submit a request to surrender and cancel your life insurance contract prior to the death of the insured or the maturity date of the life insurance policy.  In short, you are requesting an early cashing out and cancellation of your policy for any cash remaining.

Permanent life insurance products such as Universal Life, Index Universal Life, Variable Universal Life and Whole Life have a cash savings account component where any value not used to cover cost of insurance charges will accumulate and accrue interest and thus will have a cash surrender value accessible to a policy owner. During the earlier years of a life insurance contract, between 10 and 20 years, the insurance company will deduct the corresponding surrender charge listed in the policy from any request to surrender a policy and redeem any built up cash value in the policy account. The surrender charge set by the insurance company acts as an early termination fee for not keeping the life insurance policy active long enough, in the insurance company’s eyes, necessitating a partial recovery of value. The longer a policy is active, the lower the surrender charge until some point in the future where the charge drops to zero for the remainder of the life of the contract.

GET THE MARKET VALUE BEFORE CASHING OUT

Selling your life insurance policy is an alternative to lapsing or surrendering back to the insurance company.

For example, the shortened universal life illustration below, based on a 69 old Female, shows how over time the amount of the surrender charge decreases for the policy owner as they continue to make premium payments and keep the policy active.

Policy

Year

Annual

Premium

Account

Value

Surrender

Value

Death

Benefit

Surrender

Charge

1

10,578

7,908

0

250,000

-14,473

2

10,578

Cell 2 / 3

Cell 2 / 4

250,000

Cell 2 / 6

3

10,578

Cell 3 / 3

Cell 3 / 4

250,000

Cell 3 / 6

4

10,578

Cell 4 / 3

Cell 4 / 4

250,000

Cell 4 / 6

5

10,578

Cell 5 / 3

Cell 5 / 4

250,000

Cell 5 / 6

6

10,578

Cell 6 / 3

Cell 6 / 4

250,000

Cell 6 / 6

7

10,578

Cell 7 / 3

Cell 7 / 4

250,000

Cell 7 / 6

8

10,578

Cell 8 / 3

Cell 8 / 4

250,000

Cell 8 / 6

9

10,578

Cell 9 / 3

Cell 9 / 4

250,000

Cell 9 / 6

10

10,578

Cell 10 / 3

Cell 10 / 4

250,000

Cell 10 / 6

In each year as the contract continues, the account value builds up as additional funds accumulate and generate interest earnings. In the second year after paying $21,156 ($10,578 x 2) in premiums the policy owner has $15,618 in accumulated account value after deducting cost of insurance charges and adding interest. Should the policy owner choose to surrender and cash out the policy at the end of the first year they would be assessed a surrender charge of $13,953 for early termination resulting in a $1,665 (15,168 – 13,953 = 1,665) cash surrender value. By the tenth year after paying a total of $105,780 in premiums, deducting insurance charges and accumulating interest the account value would total $72,605. Choosing to surrender at that time, the charge would have dropped to $10,067 after ten years resulting in a cash surrender value of $62,538 (72,605 – 10,067 = 62,538) should the policy owner request a surrender at that time.

US policy owners received 4-8 times more than the policy cash surrender values from life settlements from 2006-2009.US Government Accountability Office (GAO) Study, 2010

If you are considering cancelling your life insurance policy for the current cash surrender value you may have other options. One such option is selling your life insurance policy in what is commonly known as a Life Settlement transaction where you may receive up to eight times the cash surrender value for your policy.​

Life Settlements are similar in nature to Reverse Mortgages and Structured Settlements where a person who has an asset (in this case the life insurance policy) can sell it for cash now. The buyers evaluate the policy and the insured’s health (no medical exams required) to determine the amount they are willing to pay. The process is simple to get a quote, usually an application is submitted, questions about medical history are covered and some information about the life insurance policy is obtained. With this information, purchasers are able to make an offer for the policy which on average is four to eight times more than the cash surrender value of the life insurance policy, greatly exceeding the amount the insurance companies may offer for terminating the policy early.

GET THE MARKET VALUE BEFORE CASHING OUT

Selling your life insurance policy is an alternative to lapsing or surrendering back to the insurance company.

What is the Cash Surrender Value of Life Insurance?
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