Does Your Senior Life Insurance Policy Have Hidden Value?
People take out life insurance policies for many reasons. As a senior, you most likely hold a life insurance policy that you took out when you were younger, when your life was very different. You may have had dependent children still living with you, who you wanted to make sure were provided for. You may have still owed money on a mortgage that is now paid off. And you may have still been saving for retirement, so that in many ways your life insurance policy was your family’s emergency nest egg. But as we grow older, our needs and our families’ needs change. Often, the need for a life insurance policy is not as great once you’re retired. This is when many seniors begin to consider giving the policy up—and they may not know about senior life settlements until it’s too late.
A senior life settlement is an alternative to giving up a life insurance policy. Normally, when you give up a life insurance policy you do so one of two ways:
By stopping payments and letting it lapse.
By “cashing out” and taking the settlement’s stated cash value.
Each of these options affects your financial situation differently:
Letting a policy lapse saves you the monthly payment, which can be quite substantial. But you most likely get no cash out of it, and all the money you’ve spent up till now is a lost investment.
Cashing out is most common if the policy is fully paid off, or close to being paid off. In this case you do get money from your investment, but it’s typically a small amount. It’s far less than the policy would have paid out as a benefit, which is what your costs were based on.
A senior life settlement offers a third way. Making a life settlement means you sell the rights to your policy to another party. They take over premium payments (if any) and they pay you cash. Typically, the amount that a life settlement pays you is much higher than the stated cash value of the policy. A settlement can be very profitable for you, and unlike letting a policy lapse, you don’t lose everything you’ve invested.
Life settlements aren’t right for everyone. But if you’re considering letting go of a life insurance policy, it’s an important option. Make sure you look into taking a senior life settlement on your policy before you let your payments lapse—or cash it out.