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.