If you’re thinking of purchasing a new home, or suddenly in the need of liquid cash, experts generally agree that opting to settle your life insurance policy may be a realistic option; however, experts also commonly reinforce the issue that settling one’s life insurance can result in potentially large losses on the policy’s value. A life insurance settlement essentially involves a broker offering to purchase the value of your life insurance policy in exchange for liquid cash. Oftentimes, this exchange allows the broker and / or 3rd party investors to pay for your policy in order to reap financial benefits in the future. In fact, retirees are often targeted by companies with offers to exchange their life insurance policies for an immediate sum of money, as settlements can lead to incredibly lucrative payouts for investors.
Life Insurance Settlements
If a broker ever offers a sum of money or a payment in exchange for your policy, keep in mind that the broker will only be offering to pay for a mere fraction of the policy’s actual value. If you choose to take the broker’s offer, then the broker generally will sell your policy to an interested buyer. The buyer will then make the payments for the premiums of your policy. While this sounds like a fairly innocent business exchange, the reality of the financial implications can be quite devastating.
For example, if a 70 to 80 year old woman has a life insurance policy that has a total worth of $1 million, then a life insurance settlement broker may be interested in offering the woman an immediate payment of potentially $250,000-and possibly more! While the instant cash may undoubtedly have its perks, the broker most likely sold off the plan to an investor; therefore, once the initial policy holder passes away, the investors are able to receive the $1 million life insurance value.
While the concept of profiting off others’ demise often strikes many individuals as offensive, this process of exchange between policy holders and brokers has become a fairly common and lucrative investment for some individuals. Ultimately, before making the serious decision to settle your policy, meet with your financial advisor and / or insurance agent to evaluate the pros and cons for your unique financial circumstance and needs.
