You may have recently heard about the option of life settlements, where you sell your life insurance policy to a third party, and be considering this option in order to fund assisted living. The buyer of the policy takes responsibility for the premiums, and then receives the benefit when you pass away.
These offers are certainly tempting, but make sure you’re considering all the possibilities open to you first. For example, you may be able to take out a loan on the cash value of the policy. You may also be able to reduce the death benefit in exchange for lowered premiums, which will allow you to hold on to the policy and some of its value. Finally, if you are terminally or chronically ill, you may be able to receive an accelerated death benefit while you’re still alive. Don’t make the decision to give up your life insurance lightly: if your policy has value to investors, it also has value to your heirs. Remember why you bought the policy in the first place.
On the other hand, if it’s likely you will lapse on your policy anyway, a life settlement can make a lot of sense. If you have decided that a life settlement is the best choice for your situation, make sure you do your research. Different life settlement providers may make you different offers, so be sure to shop around. You may want to consider using a life settlement broker, who will act in your best interest. Also know that you do not need to sell your whole policy: you may be able to arrange to keep a portion of the benefits.
How much you can get for our policy will depend on your life expectancy, how much needs to be paid in premiums to keep the policy in force, and the policy’s cash value. Think through the various implications of receiving such a large sum of money. Some of the settlement may be taxable, and any creditors you have may be able to claim the money. Also consider whether your social security or any other public benefits you receive will be affected.
Beware of schemes where you buy life insurance with an agreement to sell it later. This is called Stranger-Originated Life Insurance (or STOLI) and it’s illegal in most states. Insurers may refuse to pay benefits on these arrangements.
To learn more and to find out how life settlements apply to your specific situation, consult with your insurance agent, a financial advisor, or lawyer.