Life Insurance Settlement
How A Policy Might Be Sold For Cash
John is a seventy year-old who owns a $350,000 life insurance policy. Like everyone else who purchases life insurance, John had a good reason for taking out his policy. In his case, he wanted to provide a source of cash to his business if he should die prematurely. This very popular type of life insurance is known as ‘key man insurance.’ But look at what happened. John didn’t die prematurely.
In fact, he retired and the business was taken over by his children. John now looks at his life insurance policy in a different light. He views it now as a financial burden that’s taking up money he’d rather be able to spend on enhancing his current lifestyle. John could give the policy back to his insurance company for its cash value of $35,000, or he could choose to pay no more premiums and let the policy keep going until it lapses. Or he could do something else. He could seize upon an opportunity to sell his policy in the secondary marketplace. Well, that’s precisely what he did.
Q: What is a life insurance settlement option?
A: A life insurance settlement option is a process that allows the policyholder to receive a lump sum of money from the insurance company in exchange for giving up the policy’s death benefit.
Q: What questions should I ask when considering a life insurance settlement option?
A: When considering a life insurance settlement option, it is important to ask questions such as: How much will I receive from the settlement? What fees and taxes will I be responsible for? What are the implications for my beneficiary? What is the process for obtaining the settlement?
Q: What are the pros and cons of a life insurance settlement option?
A: The pros of a life insurance settlement option include the potential to receive a lump sum of money that can be used for a variety of purposes, such as paying off debt or investing. The cons include a reduced death benefit for the beneficiary and the potential for fees and taxes associated with the settlement.