In a nutshell, a life settlement is simply selling your life policy for a cash amount greater than its cash value but less than the death benefit or face amount. The particulars can get complex so if you seriously pursue settling your policy, you will need experienced advice. To help make your decision, let us look at some advantages of selling a policy:
- Immediate cash for needs or wants.
- No more premiums.
- Extra monthly cash on hand.
- The settlement money is taxable.
- The cash can jeopardize eligibility for social services benefits, such as Medicaid.
- No tax-free death benefits for survivors.
- Future insurability can be jeopardized.
- Confidential information can be compromised.
- No control over policy ownership.
- Sell a policy only if you no longer need or want it and do not anticipate needing life insurance in the future.
- Consider alternatives to selling, such as using your cash value to buy reduced, paid-up coverage or an extended term insurance. Your advisor should go over the alternatives with you.
- Compare the financial benefits of selling the policy with keeping it. Again, an experienced advisor has the tools to show you today's value of future money so you can see if 'holding' or 'folding' is better for you.
- Sell only to institutional buyers. This will give you the best price because these companies compete with each other for policies to buy. In fact, they bid for them much like you bid for items on eBay.
- Provide your medical records for analysis.
- Undergo at least one physical examination.
- Have your finances thoroughly examined.
In working with the broker or buyer, keep in mind:
- Insist on disclosure of the broker's fees and all offers that are made.
- Insist on confidentiality. Your policy may be resold more than once and subsequent buyers do not need to know who you are or where you live.
- Pre-settlement expenses are part of the investment costs and the buyer should pay them.
- Once you sell the policy, the new owner pays the premiums. Also, once you have sold your policy, expect to be called periodically about your health.
Jonathan Kostyra is a real estate broker serving the Greenville SC Real Estate market and the downtown Greenville SC Condos market |
2 comments:
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