Don’t Need or Want Your Existing Life Insurance?

Should You Sell Your Existing, Inforce Life Insurance Policy?

If you are 65 or older with a life insurance policy you may not need or want any longer, you may be aware of the idea of selling your policy in the secondary market. The secondary market for life insurance policies is nothing more than a market for unwanted life insurance policies — usually institutional investors. Sometimes these buyers keep your policy after paying the owner an agreed to price. Other times, they re-sell the policy to other institutional investors. A good example in another industry of how this works is Carmax in the auto industry. They buy cars from people who don’t want them or can’t afford them and they re-sell them.

Before making the decision to sell a policy, talk it over with an experienced life insurance professional who can help you evaluate your decision in the best light possible. If the policy is valuable to a 3rd party, it may also be valuable to you or your family. You may view this value from a completely different perspective than you have as the owner and/or the insured.

Selling a life insurance policy may not appeal to everyone. For some, it simply does not pass the smell test. They don’t like the idea of someone else having an interest in their mortality. It is a perfectly reasonable position, regardless of the potential financial windfall that might exist. Selling a life insurance policy is known as a life settlement. There can be significant differences in what you receive from the secondary market versus the value your policy may have from the life insurance company that issued your policy. For the issuing company, the value is based on the cash within the actual policy; its surrender value. With disclosure and transparency firmly in place in most states, it may be in your best interest to consider selling unwanted policies. The goal is to compare any offer you receive against the value in the policy.

Ninety percent of seniors who lapse policies without knowing about a life settlement indicated they would have considered a life settlement if they were aware of the process.

Further, 79 percent feel their advisers should have told them first.

Depending on several important factors, including age, health and the policy type, there can be significant market value which may translate into your receiving 20–30% of the policy’s face value. Many people consider lapsing or surrendering a policy because they no longer want to pay premiums for a policy they no longer need or can afford.

Before surrendering or selling a policy, talk with a life insurance professional.

The reasons to consider selling an unwanted or unneeded policy:

· Receive a higher cash payout than cash surrender value.
 · Receive money for a term policy.
 · Create cash to fund retirement solutions such as guaranteed income annuities, long term care insurance or life insurance with the installment payout option.

Once you thoroughly understand this option, you are more likely to make a good decision. The idea of selling an unwanted life insurance policy is still considered unfamiliar to many policy owners.

The economics of selling a policy are often superior to the alternatives. For example, 30 years ago, Dr. Smith purchased $2,000,000 of life insurance to protect his wife and children against the loss of his $300,000 income. He was 46 when it was issued and today, at 75, his children are grown and that life insurance “need” is gone. With nearly $100,000 of guaranteed lifetime income from annuities, a pension and social security, Dr. Smith feels the “need” for a death benefit to protect his wife is not necessary.
 With a life settlement offer of $300,000 compared against the insurance policy’s surrender value of $90,000, the decision appears to be simple in this case. After selling the policy, the $14,000 annual premium becomes the responsibility of the new owner, not Dr. Smith who in effect, received a raise of $14,000 in retirement. Unfortunately, each year there are too many people who are still unaware of this option or they fail to give proper consideration to the risks and rewards of this meaningful alternative.

Potential Disadvantages:

  1. Life Insurance benefits are usually income tax-free. Life Settlements may be subject to income tax.
  2. Paperwork is required to transfer the ownership of the policy.
  3. Proceeds will benefit buyers, typically non-family members.

When you are ready to consider selling your policy, seek out an experienced life insurance professional that has access to the relevant settlement brokers and can help you interpret the offers from competing buyers.

Life insurance is an asset with great potential value. If you own life insurance, have it reviewed. There is no downside to having your coverage reviewed along with your goals and objectives. Life insurance benefits from innovation, offering better value and lower rates across the board.

Please email me at Ted Bernstein or call me at 561–869–4500. Visit us at Life Cycle Planners in Boca Raton, Florida.