If you've owned a whole or term life insurance policy for years and are having trouble keeping up with your monthly or annual premiums, you may be wondering whether you have any options short of stopping your premiums and forfeiting any coverage. For some Americans, selling your life insurance policy through a process known as a "life settlement," can be a viable way to drum up some extra cash when you need it. However, this process isn't without its risks and potential pitfalls. Learn more about some situations in which it may make sense to sell your life insurance policy.
When You're No Longer Insurable
If your health or age has made it all but impossible for you to take out a new life insurance policy, maintaining your current one may no longer make sense. Meanwhile, your insurance company may not want the increased risk of payout for someone in poor health. Entering into a life settlement to trade your life insurance coverage for cash can be a win-win for both you and your insurance company.
When You're Over Age 65
Federal regulations and restrictions on the use of life settlements mean that this cash payout generally isn't available for those who are under age 65 or who have a policy with a face value of less than $100,000. In these situations, an alternative—like asking a policy beneficiary to take over paying the premiums in exchange for their receipt of all the benefits—can be another way to ease the hit on your wallet without forgoing coverage.
When Your Life Expectancy is Short
Although it's an unpleasant thing to consider, individuals who are expected to pass away fairly soon (whether due to age or terminal illness) can be eligible for far higher life settlement payouts than those with a longer life expectancy or who are in good health. If you're interested in preserving assets for your spouse or other heirs after your death, a life settlement can be a good way to accomplish this.
What Should You Consider Before Entering Into a Life Settlement?
If you're eligible for a life settlement and are seriously considering it as an option, you'll want to keep a sharp eye on fees. Life settlements can involve a mishmash of fees and regulatory costs, and it's important to know exactly how much you'll be receiving from any settlement before you sign over your policy. If you're aiming to get a certain dollar amount out of your existing policy, it can pay to shop around to ensure you're getting the best rates.