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Do you think that your life insurance policy no longer serves the initial purpose it was intended for? When you first purchased a policy, you probably used it as a means of leaving money to your heirs without worrying about high taxes. But changes in your life can render a life insurance policy as an unnecessary expense, especially for seniors who have no debts and whose children have already grown to be financially independent. In these circumstances, it’s worth considering a life settlement to convert your policy into cash.
How do life settlements work?
A life settlement is a transaction between a life insurance policyholder and an investor, with a life settlement broker acting as an intermediary. The investor purchases the policy for more than its cash surrender value but less than its death benefit. The seller transfers all of the benefits and responsibilities associated with the policy to the investor, including payment of future premiums.
In general, you can expect to receive 20 per cent to 25 per cent of your policy’s death benefit if you take this route. The investor receives the death benefit upon your death. For many seniors, this is a scenario they can live with particularly if they don’t have anyone who can really benefit from their policy. The cash can also be used to address financial emergencies such as covering medical costs.
Who are the perfect candidates?
Getting fast access to cash can prove tempting for anybody, but it’s important to learn the ins and outs of a life settlement instead of pulling the trigger blindly. The right candidates for a life settlement are seniors whose loved ones may no longer benefit from the life insurance policy, especially after a divorce or death in the family.
Many seniors also need the cash for retirement. Without a regular source of income, retirees can experience a rough life in retirement and cause them to be unable to pay expensive premiums. Selling your policy can be a reasonable way of paying your living expenses.
Although the cash you get from a life settlement is significantly less than what your beneficiaries would receive from the death benefit, it’s vital to realize that it can actually help their financial situations as well. For instance, the cash can be used to pay your medical bills and avoid putting the burden on your loved ones.
Where to go if you want a life settlement?
Although they haven’t had an easy introduction to the UK market, life settlements have become more popular both for policy holders and investors. During their early years, many steered clear of life settlements because of the exorbitant fees and commissions often linked with them. Thanks to stricter regulations, however, life settlement brokers now work under protective guidelines to ensure that sellers get the most out of their policy.
You can turn to your financial advisor for help in finding a reputable and licensed life settlement broker. Because of the sheer amount of money involved, you should also expect to work with a CPA or even a lawyer. All this means you’d have to shell out money upfront to receive professional assistance, but these experts can help you scour the market and find the best offer for your policy.