Life insurance is an insurance policy that pays benefits when the policyholder dies. People may buy life insurance to cover their final expenses and settle their estate. Some buy life insurance to provide for their spouse or dependents in the event of their death.
Policyholders may pursue a life insurance settlement before their death for several reasons. Although this process is usually straightforward, some factors can complicate the process. Let’s look at some critical insurance information to keep in mind when pursuing a life insurance settlement.
What is a life insurance settlement?
A life insurance settlement involves the sale of a life insurance policy. When the policyholder pursues a settlement, they sell their policy to a third-party buyer for a lump sum of cash. The policyholder receives more than the policy’s face value, but less than the death benefits the policy. The new policy owner assigns a new beneficiary, who receives the death benefit when the original policyholder dies.
Selling your life insurance policy could affect your other insurance costs.
When you need insurance, it’s natural to head to a company such as InsuranceTales and evaluate your options. Insurance Tales prompts you to supply personal information about your insurance needs, age, and location. It uses your data to generate a list of insurance companies that offer the insurance plans you need. You can get free quotes about life insurance plans, home insurance policies, auto insurance packages, and other insurance plans, such as health insurance.
Make sure you understand how your insurance policy works when you choose a life insurance policy. Know the cash surrender value of your policy and factors that could affect the sale price. Some insurance policies double as savings accounts, which could affect your policy’s value. Withdrawing funds from your policy’s savings could also affect the value of your policy and undermine your ability to sell the plan.
Your insurance company may offer discount rates when you bundle your insurance plans. Opting to sell your life insurance policy could affect your bundling discounts, resulting in a rate change for your remaining insurance policies. Discuss your plans with your insurance provider to ensure you understand how the settlement will affect your monthly insurance premiums.
You should understand if you qualify for a viatical settlement or life settlement.
Familiarize yourself with the difference between life settlements and viatical settlements before contacting a life or viatical settlement company. Anyone can pursue a life settlement. Viatical settlements are available to people with a terminal or chronic illness. The viatical settlement broker must establish that you qualify for a viatical settlement, and viators may be required to provide updates on their health status. Working with a settlement broker can simplify the process of selling your insurance policy, ensuring you get a fair rate for your life or viatical settlement.
Both life and viatical settlements pay more than the cash value of an insurance policy, but buyers pay less for life settlements. The reason sellers receive more for a viatical settlement stems from the fact that the policyholders have a longer life expectancy than those who qualify for a viatical settlement. The buyer’s an investor who expects to recover their expenses and profit from the policy benefits.
Life and viatical settlements offer specific advantages.
There are no restrictions governing how you use the funds from a life settlement or viatical settlement. You may opt to use the cash to pay off debts or cover the cost of medical treatment. You can also use the revenue to take your family on an elaborate trip or fulfill some of your lifelong dreams. Viatical settlements are tax-free.
Life and viatical settlements have some disadvantages.
Once you sell your policy, you won’t have death benefits to leave your dependents when you die. This may not be an issue if you have a second life insurance policy or have prepaid for your funeral and have savings. Still, it’s an essential consideration for most people when deciding to sell their policy.
Working with a settlement broker can simplify the process of securing a viatical or life settlement. Consider the pros and cons of pursuing a settlement to ensure you make a sound financial decision for your family.