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You’ve probably heard about the wonderful opportunity a life settlement can offer you in your retirement. Did you know you can sell all or a portion of a life insurance policy, even term insurance? By cashing in on an unnecessary policy, you can take advantage of these funds and put them to good use, such as for travel or medical expenses. But how much is your policy worth, and what do you do if you decide to sell it? On average, seniors who qualify for a life settlement can expect 4-8 times their cash surrender value.
Term Life Insurance vs. Permanent Life Insurance
When you first purchased your life insurance policy, you likely decided between these two choices. A term life policy is for a set amount of years, usually between 5 and 30. If you live longer than the term period, there is no payout to your family or beneficiaries. Additionally, there is no building cash value in this policy (much like renting an apartment). A permanent life insurance policy, however, actually accrues value over time.
Determine the Policy Size
Life insurance policies can have a varying size, all depending on the needs of the insured. Size is generally measured based on payout to beneficiaries, or the check cut to your family after your death. This amount could be $100,000, but can easily go into the millions; one mystery billionaire recently purchased a whopping $201 million insurance policy! Regardless, though, the amount of a life settlement will depend heavily on how much the policy is actually worth.
Cash Surrender Value Matters
Built into any life insurance policy, the cash surrender value measures the dollar amount that the insurance company would pay to the policy owner if the policy were ended prior to its expiration or insured demise. There is a chance this may be equal to a life settlement amount, but a trusted life settlement advisor will need to examine your policy before you make that decision.
Building Value Over Time
The longer a permanent life insurance policy is active, the more valuable it becomes. As the years pass, many insurance policies will start to accrue cash. This untapped amount is sometimes used as collateral for a loan, although many companies charge a withdrawal fee, and the loan is often taxable. Try to avoid taking money out of this account in order to maximize your potential life settlement return.
What About Life Expectancy?
Although no one likes to contemplate the end of a life, life expectancy and longevity will definitely influence the bottom line for any life settlement. Though the tools they use are private, those looking to purchase life insurance policies will take into consideration how long until they see a return on these investments. Keep in mind, though, that this is not an end-all definition to the worth of a life settlement option.
Though each situation is unique, there are ways to estimate the potential return of a life settlement policy even before you’re ready to commit. By using Life Settlement Advisors’ handy calculator tool, you can determine if you qualify for a life settlement. Contact Life Settlement Advisors today to learn more.
Case Study: Harry and Virginia purchased a joint survivorship life insurance policy several years ago to pay federal estate taxes. Due to the recent tax changes, Harry and Virginia no longer need this policy. Harry and Virginia sold their policy and used the proceeds to take that dream vacation, pay off a few medical bills and setup a college fund for their grandchild.
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