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You are here: Home / Insurance / Are Life Settlements Worth It?

Are Life Settlements Worth It?

May 28, 2021 by Post

If you have a life insurance, you might wonder whether selling your policy is a good idea. Many Americans are interested in using their policies to fund retirement, and a life settlement is one of their options. Retirement funds don’t go as far as they used to, and people in their 30s, 40s and 50s today have to consider what they’ll actually need to have put away to survive by the time they reach retirement age. As with any investment, there are pros and cons to a life settlement. You shouldn’t rush to surrender your policy to get money when you can settle for more cash. To learn more about the process in-depth, you can review a comprehensive guide on the best life settlement companies in 2021.

Selling vs. Cashing In

Permanent life insurance generates a cash value that you are allowed to withdrawal and spend however you want. This amount is determined based on your policy, usually through a fixed premium. A specified portion of this premium is put toward your cash value, which then grows through interest. Because of the interest, your contributions allow your policy’s overall cash value to increase with time. However, life settlements allow you to sell your policy to a third-party for a higher amount than your surrender cash value but less than your death benefit. This makes it a potentially valuable source of profit in your senior years, especially due to the fact the sale is mostly tax-exempt.

Reasons to Settle Instead of Surrender

There are a number of reasons why you might choose to opt for a settlement rather than surrendering your policy. The most obvious is that you want to use the money now while you’re alive rather than save the death benefit for your beneficiaries. This could be to fund the cost of healthcare, but there are plenty of other reasons that aren’t related to any health problems.

Get More for Your Money

Life settlements allow you to cash in for a higher value and reap the financial benefits of maintaining an active policy for decades. The earlier you start, the higher your cash value will be when you’re old enough to sell (usually around age 70). This is the perfect way to plan ahead for retirement, and you’ll likely get far more out of your settlement than you will from your monthly 401(k) or IRA.

Supplement Your Income Later in Life

You can care for yourself and loved ones better while you’re still alive if you settle. If your spouse has passed away or you no longer have dependents, then selling gives you greater financial security and comfort. If your family is still alive and well, you can provide more for them and enjoy a higher quality of living than you may be able to on retirement funds alone. This could also prevent you from becoming dependent on your children later for shelter and basic necessities.

Cover Long-Term Healthcare

As we age, we need greater access to health resources, including medical specialists and prescription medications. By selling your policy, you can provide everything you need to yourself without having to dip into your standard income. This helps you avoid going into debt as a senior just for taking care of your needs.

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