Most people avoid talking about life insurance for the simple reason it forces you to admit to our own mortality. After all, as some people say, you reap little benefit directly and it only comes into play upon your departure from this life.
That's not entirely accurate. There are more immediate benefits.
We live in an uncertain world where all our financial planning for retirement can be destroyed by an act of Congress, a loss of pensions, or even severe economic downturn. These are becoming uncommonly-common events in the world today. People are living longer, which is creating more of a financial crisis for senior citizens than anyone ever imagined.
I picture it like this: when a pilot remains in the air longer than anticipated, they can find themselves low on fuel, becoming what is known as "fuel critical." By living longer and healthier today, we can become like the airplane that is running out of fuel and find ourselves in a "financial critical" situation.
When To Be a Sell Out
When you purchase a permanent or whole life insurance policy you build cash, surrender value, or policyholder's equity. Cash-value policies hold these funds in cash-accumulation accounts. You can access the cash held in reserve by making a withdrawal, loan, partial or full surrender of the policy. However, I’ve recently learned of a lesser known option called a "life settlement," which is to sell your policy for cash.
Most life insurance policies are purchased for the financial security of a surviving spouse and children. If you no longer need to provide that kind of protection, selling the policy makes a lot of financial sense. And a bonus, from what I can tell, is if you're over 65 with a face-value policy of at least $250,000, selling the policy should be a breeze.
How To Sell Outright
A life settlement is a pretty basic transaction.
Say I have a policy with value. I sell that value to an investor who then assumes the payments and becomes the beneficiary. (The qualifications are typically very simple and dependent on age, the type of policy, and the investor’s health.)
The biggest benefit to me (and anyone else who has sold their life insurance policy) is the higher cash amount received over simply surrendering a policy. The typical return for surrendering is about 10% of the policy value. Not exactly the best transaction in the seller’s favor, but one the insurers love. Depending on your circumstances, a life settlement may return up to 8 times the surrender value. I don’t know about you, but that fact alone seals the deal for me.
If you're at a point where paying premiums on life insurance just won’t make sense anymore, a life settlement is a lot easier to justify than just letting the policy lapse and thereby losing all value you've earned and paid for all these years. No reason to let yourself go "financial critical."