Tuesday, May 14, 2013

Life settlements - right for you?

Thanks to ALS for sponsoring this post!

Have you ever heard of life settlements?

Life Settlements, according to the Life Insurance Settlement Association, is "the sale of an existing life insurance policy to a third party for more than its cash surrender value but less than its net death benefit."

If you have a whole life policy but don't want it any more, you can surrender it back to the life insurance company where you purchased it.  However, you'll probably only receive 3% to 5% of the original face value.  It's certainly not worth it to have spent all that money on premiums and get so little in return.  But, you may not want to continue making payments for a type of insurance that you no longer need.

So, instead, you can sell your policy to another party.  You receive a larger amount than you would from the insurance company.  The purchaser continues to make payments on your policy, and when you pass away, they collect on the premium.

This is typically only available to policy holders who are 65 or older.   So if you are younger and have a whole life policy, you probably can only get the surrender value.

What's my opinion on life settlements?  I think this is another sign that whole life insurance is a lousy deal.  Instead of purchasing whole life with huge premiums, purchase 20-year or 30-year term life insurance at a fraction of the cost.  Then save the difference between your cheap term life insurance and more expensive whole life, so that you will be self-insured after the term ends.

It also disturbs me that life settlement investors are betting on you dying early, since if you die, they receive the insurance amount without having to pay out as many payments that they would pay if you lived longer. I wouldn't want someone out there hoping that I would die, you know?

But, if you are over 65 and have a whole life policy that you simply don't need anymore, life settlements can be a way to recover some of the costs of your extremely expensive policy, more than if you simply surrender the policy.  So if this fits you, learn more about it!

But for the rest of you, please check out term life insurance coverage - it's a much better deal than whole life, and you won't need a life settlement in the future!

(This post is sponsored by ALS and may contain affiliate links. Please see my disclosure policy for more information.)


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