Protect Your Nest Egg with Life Insurance
Protect Your Nest Egg with Life Insurance
If you have been withdrawing from your life savings to meet expenses, you're not alone. Real-life stores of people either losing more than 50 percent of their life savings in the 2007 economic crash or having to dip into their retirement investments to pay off bills and medical expenses are far too many. As senior citizens begin to wonder how or when they would earn enough money to replenish their retirement funds, many have opted to protect their nest egg by choosing a life settlement option. If you're thinking of going that way, think carefully. Life insurance experts say you may be treading a dangerous path. Albeit, statistics show that as the nest egg dwindles in size and loans are hard to come by, selling your life insurance policy may be the most viable option you have.
Life settlements came into fashion in the 1980s with the AIDS crisis. In need of money for treatments, those suffering from AIDS sold their life insurance policies to a secondary insurance market for immediate cash to pay for their medical expenses. These were called viatical settlements. Gradually, medical science developed effective treatment for AIDS victims. The secondary insurance market that profit from life settlements, began to cast its gaze on the terminally ill and seniors in their mid-60s or older. The best candidates are considered to be those who are older and have a life insurance policy that is valued at least $500,000.
Life Settlement - an Attractive Option in Today's Economy
There was a time when the only two options you had for terminating your life insurance policy were:
By allowing the policy to lapse by not paying premiums
By surrendering your policy to the life insurance company that issued it.
The surrender value is the price you get when you surrender your policy to the life insurance company you purchased from. The surrender value is usually a small amount and if you have a term life policy, it cannot be surrendered as there is no cash value attached to it.
If you are an older person, you may be attracted to life settlements because it is definitely a more lucrative alternative than allowing your policy to lapse or getting a paltry surrender value. Life settlement is a recent option that has opened up for people who feel they no longer need their life insurance policy for a number of reasons:
Your spouse has passed on. Life insurance was meant to provide her/him with financial security.
You can no longer afford to pay premiums.
You have dipped into your retirement funds and need to put the money back for future security.
You would like the extra cash, perhaps a long-awaited vacation or your old home needs a makeover.
You don't have estate taxes to pay.
Your family doesn't need the money and you have enough money in your account that may be used towards your funeral expenses.
Whatever your reason might be to opt for a life settlement, insurance experts say it should be the last option you choose. A life settlement involves writing off your life policy to a third party (a life settlement broker/provider) who then becomes your beneficiary. The new beneficiary will hold your life policy until it matures or sell the interest to hedge funds or other investors. Life settlements are considered to be unethical as a third party has a vested interest in your death, which is why they may result in an incentive for murder.
The reason why life settlements are an attractive proposition is because you get more than the surrender value of the policy, but less than the actual death benefits. The price that your policy can fetch in the secondary market is based on your life expectancy as well as the terms and conditions of your policy. Some policies are able to fetch up to 8 times the surrender value.
Approach Life Settlements with Caution
Experts caution that a life settlement may not make sense in all cases. Financial circumstances may force you to protect your nest egg by signing off on a life settlement. Here are some tips to keep in mind:
Look for a life settlement broker who has a license. This automatically installs safety nets into your transaction and may also save you money on taxes. While death benefits are tax free, the money you get from selling your policy is liable for taxation. Therefore, calculations of your selling price should include taxes, commission fees and other fees.
Shopping around will give you the best value for a life insurance settlement. Remember, not to settle without a written offer from the buyer.
Before selling a policy consider other options:
If you have a whole life policy, you could take a loan against the policy.
If you have a terminal illness you may be eligible for accelerated death benefits which pay you death benefits in advance to pay for treatments.
If you're strapped for cash, and can't pay premiums, consider reducing the death benefits so that you pay a premium amount that you can afford.
Conclusion
Life settlements have considerable ethical consequences. Both the seller and the buyer should think carefully before making such a decision, which would be irrevocable. The good news is that as more people are opting for life settlements as a better alternative to letting a policy lapse or surrendering it, the state and federal government is attempting to introduce more regulation to monitor this industry, making life settlements a safer transaction. Be sure to follow the advice of a licensed insurance professional and do your homework before finalizing a deal. Reasons to Convert Term Life Insurance to Permanent Life Insurance Do Dham Yatra, Easiest and Time Saving Way to Achieve Truth of Life Uses of Permanent Life Insurance in Estate Planning Should You Buy Guaranteed Issue Life Insurance? Life Insurance: Owners and Beneficiaries You By no means Associate When You Can Be In For Some Life Insurance Manulife Combined Term Life Insurance Save Money Alberta How To Shortly Find The Best Time Period Life Insurance Quote? Benefits Of A Whole Life Insurance Policy Term Life Insurance Quotes Canada Health Insurance and Life Insurance Stairway to Heaven Lyrics and Neil Sedaka's Angelic Life Auto care like nowhere