Why do people sell their Life Insurance?
Main reasons people sell their life insurance
After speaking with clients over the past few years I have heard quite a few reasons for why someone wants to sell their life insurance. The main reason usually tends to be the need to pay for medical care or long-term care. With that said, there are also clients who simply no longer need to carry life insurance because their needs have changed. I will go over some of the main reasons that people sell their life insurance and how it benefits them in each situation.
First let’s go over what a life settlement is; When you sell your life insurance policy to a third party for cash, this is known as a life settlement. The amount it can be sold for will be greater than the cash surrender value of the policy but less than the death benefit, also referred to as the face value of the policy. When you sell a policy, the buyer will continue paying the insurance company's premiums and collect the death benefit.
When the only other options are to surrender the insurance or let it lapse, life settlements are frequently worthwhile to consider. Policyholders of any age who have substantial health limitations are eligible. Before making this choice, anyone thinking about a life settlement should speak with a financial counselor.
Now let’s look at a couple of the main reasons people sell:
- One of the main reasons people look at selling their policy is, their term policy is coming to an end and the premiums to convert it to a whole life product are 10-20x more. This makes it almost unaffordable for most people to even consider keeping the policy. In this scenario the insurance carrier is hoping that the policy is just let go and that the client will possibly buy a new lower face value policy. They can sell that policy and let the buyer deal with converting it to a whole life product. If the client still wants to be insured, they can use the cash from the sale of their initial policy to get into a new policy!
- The need for retirement funding, long term care, paying bills, or even for personal leisure. Over the last 20 years retirement savings have been reduced because of the economic downturn. The need for cash in hand has grown over the years for multiple reasons. With an asset such as a life insurance policy, many find it beneficial to sell their policy to alleviate financial stress.
- Another reason as mentioned before is so that the client can cover medical bills and other expenses. In many cases the client is out work and overly burdened with bills. Selling their life insurance gives them a cushion to pay those bills and still live comfortably while dealing with their immediate medical needs.
- Clients may also want to sell because they no longer want to pay monthly premiums. Especially in cases where the premiums are constantly rising, and it begins to stretch the client thin. This is one of the reasons many let their life insurance policy lapse.
A life settlement helps the client alleviate the stress of paying premiums and recoup some of the investment they have put into the policy over the years.
With these being some of the main reasons that people sell their life insurance policy, there are numerous reasons for why someone might want to consider a life settlement. Knowing all your options when it comes to your life insurance, it’s important to know what it might be worth if you wanted to sell. You can call or email us to get more information and even receive a free evaluation of your policy. This will help you decide if a life settlement is a good option for you.
Chris Manning
Chris@lifestonesettlements.com
