Many people sell life insurance policy when they reach retirement age or when their all their accounts have paid off. Selling has several advantages over keeping the policy - it gets rid of premium payments, conforms to the needs of your dependents, and gives you access to a large sum of cash that would take weeks to get through a bank loan. But there are important things to know if you're planning to cash in.
For instance, not all policy holders are qualified to sell life insurance policies. In most cases, life settlements are exclusive to people over 65 who are expected to live the next 20 years or so. There's usually also a minimum value, which may range from $100,000 to $250,000.
There are also doubts on the security of insurance policy selling. As with other settlements, there is always a risk of investment and insurance fraud. That is why it's important to know how a settlement works, and what to watch out for when you sell life insurance policy.
People sell life insurance policies to a third party, which is usually an investment company. The buyer determines the purchase value of the policy based on two main factors: its face value, and the health of the policy holder. This is because a healthy policyholder likely to live for a long time can generate more profit for the buyer.
Investors pay only a percentage of the policy's face value to compensate for the risk they will assume when they buy the policy. They will pay all the future premiums and get all of the death benefits after the holder dies. After you sell life insurance policy, the company might check on you from time to time, or assign a lawyer or some other third party to stay in touch with you.
There is another type of settlement called a viatical. This applies to policy holders who are terminally ill, as opposed to life settlements where the holder's health has merely declined. They are worth more than life settlements because there is some certainty of the policyholder's time of death, which makes it less risky. You may be able to sell life insurance policy in a viatical sale for up to 80% of its value, while a simple life settlement might fetch you only 20%.
Life settlements also pose a few risks to the policyholder. If you make a life settlement and have existing health problems, you may not be able to get insurance coverage in the future. People who sell life insurance policies will also waive the insurance benefits of their beneficiaries. Most insurance companies recommend that you check all your options before selling.
Also take note of investment scams commonly practiced by unlicensed investment companies. If you're not using a broker, get rates from a number of firms before you sell life insurance policy. Two of the most common scams are the following:
"Cleansheeting" - People may buy life insurance policies for the sole purpose of selling them to the investor. Often, the investor will tamper with the medical report to make you appear healthier on paper and make the policy more profitable.
"Wet paper" - Some investment companies urge older people to buy life policies, then sell it back to them after a few weeks.
Life settlements are a great way to benefit from your life insurance. Why pay premiums when you can use your money now? As long as you work with professionals, selling your life insurance policy can help you enjoy your investments while you still can.
Jamie has been working in the finance industry for many years and is a contributing editor to Find out how to sell insurance policies and get a free quote on our website.
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