Selling Your Life Insurance Policy

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Donald Brown purchased a $2.5 million universal life policy in 2000. The 2008 recession took a toll on his estate, and the 75-year-old turned to his policy for financial help. The retiree was paying $60,000 in yearly premiums that he could no longer afford, and when Mr. Brown met with his financial advisor, he learned the cash surrender value of his policy was $188,000.

Mr. Brown’s financial advisor suggested he explore a life settlement.

Mr. Brown was very excited when he received $500,000 in cash. The institutional buyer assumed all his premiums from that point and Mr. Brown was freed of the burden of his monthly payment with half a million dollars in new found cash he could spend as he wished.

Life insurance policies can be acquired by institutional and private equity groups which make up a secondary life insurance market. The secondary market for life insurance has been around for more than twenty years. Today, many seniors have realized that this is no different than selling any other asset that they no longer have a want or need for.

At first, the emotional reaction to learning that you can sell your life insurance policy can be confusing, but if the owner of the life insurance policy can step back from that, they may begin to realize this is just an asset that they can sell to create a liquidity event (immediate cash). In today’s world, seniors can do one of two things with that unwanted or unneeded life insurance policy once they have decided they no longer are going to keep the policy: surrender it back to the insurance company for pennies on the dollar (surrender value) or sell it for significantly more than what the insurance company will give them.

Lawmakers in Texas passed a bill enabling a policy holder with a face value more than $10,000 to sell it and use the proceeds to pay for long-term care services.

“Medicaid counselors in Texas are now required to ask an applicant to disclose their assets, including life insurance policies, to determine eligibility. A life insurance settlement delays the retiree’s entrance into Medicaid after 65 years old, which can help alleviate the burden on the public safety net.”

New York lawmakers may soon follow in the footsteps of Texas with a similar bill that’s currently under consideration.

According to a U.S. Government Accountability Office (GAO) report, 38% of all applicants applying for Medicaid have a life insurance policy, and the average size of that policy is $92,000. The average life settlement on a $92,000 life insurance policy is $32,000.

States are experiencing exponential growth in Medicaid spending for long-term care services and life settlements are an important private sector solution that enables seniors to choose the level and type of long-term care they need, pay for it themselves, and, in the process, save states money on Medicaid. A growing number of states – at least 10 now – are promoting life settlements as an alternative to Medicaid.

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