“When a life insurance policy is no longer wanted or needed, many policy owners either abandon their policy by not paying the required premium or surrender it back to the carrier. In either situation, the insurance carrier wins, and the policy owner is stuck holding the empty bag.”
It is quite common to buy life insurance. It may have been to protect your family financially or as a vehicle to provide liquidity for estate taxes. As we grow older and laws change, it is critical to determine if your policy has outlived its intended purpose. The traditional strategy of “buy and hold” no longer applies to the ever-changing world. Today, it may be a good idea to consider selling your policy.
Forbes’ recent article entitled “What You Should Know Before Selling Your Old Life Insurance Policy” explains that a lesser-known alternative to abandoning or surrendering a policy is known as a life settlement. This gives the policy owners the chance to get a much bigger cash lump sum, than what is provided by the life insurance carrier’s cash surrender value.
Life settlements are not new. Third-party institutional buyers have now started to acquire ownership of policies, in exchange for paying the owner a lump sum of cash. As a consequence, the policy owner no longer needs to make future premium payments.
The policy buyer then owns the life insurance policy and takes on the responsibility of future premium payments. They also get the full death benefit payable from the life insurance carrier when the insured dies.
Research shows that, on average, the most successful life settlement deals are with policies where the insured is age 65 or older. Those who are younger than 65 usually require a health impairment to receive a life settlement offer.
Knowing what your life insurance policy is worth is important, and its value is based on two primary factors: (i) the future projected premiums of the policy; and (ii) the insured’s current health condition.
Many policy owners don’t have the required experience with technical life expectancies, actuarial tables and medical knowledge to properly evaluate their life settlement value policies. This knowledge gap makes for an imbalance, since inexperienced policy owners may try to negotiate against experienced and sophisticated policy buyers trying to acquire the policy at the lowest possible cost.
To address this imbalance, the policy owner should seek help from an experienced Cincinnati estate planning attorney to help them with the process to sell the policy for the highest possible price.
If you have an old life insurance policy that’s collecting dust, ask an experienced estate planning attorney to review the policy’s importance and purpose in your portfolio. This may be the right time to turn that unneeded life insurance policy into cash.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Forbes (Jan. 26, 2021) “What You Should Know Before Selling Your Old Life Insurance Policy”