Four Questions to Ask When Deciding Whether to Keep or Sell Your Life Insurance
By: Lucas Siegel
What do you need to know to determine whether you should sell your life insurance policy for cash?
According to AARP, nearly half of Americans age 55 or older have no retirement savings. As a result, the concept of selling your life insurance policy through a life settlement has become a popular trend. Essentially, qualifying senior citizens can sell their life insurance policy to a third-party for a lump sum of cash that can be used to help with living expenses during retirement.
To help you determine whether or not you should sell your life insurance policy, we’ve compiled this list of essential questions to consider:
- Am I eligible to sell my policy?
Several factors determine whether you are eligible for a life settlement. First of all, consider the type of policy you have. Eligible policies include a convertible term, variable, and universal life policy among others. Additionally, each state has its own requirement on the minimum number of years for which you must own the policy before selling it. Your age and the value of the policy also impact your ability to sell, as you typically need to be at least 70 with a policy valued at $50,000 or more to qualify for a life settlement.
If you do not meet these conditions but have a terminal illness—you may still be able to sell your policy through a viatical settlement.
Determining eligibility can be confusing, so it’s best to contact an experienced life settlement company who can help you determine if you’re eligible to sell and provide you with a free cash estimate.
- Are your beneficiaries financially stable?
In many cases, people with financially stable beneficiaries opt to “cash out” because their loved ones will not need the money from the death benefit. This can be beneficial for both parties, as you’ll have greater financial freedom and won’t need to lean on loved ones for financial support in your golden years.
- Do you need additional cash funds for retirement or long-term care?
The U.S. Department of Health and Human Services reported that 70 percent of Baby Boomers will require some form of long-term care services in their lifetime. As of 2019, the cost of a one-bedroom residence in an assisted living facility is about $48,612 a year and is expected to continue rising. Many older adults are unequipped to pay these costs, and even those who won’t require long-term care lack enough cash to properly enjoy retirement.
The lump-sum received from selling your life insurance can be used to pay for long-term care costs, or to simply pay for living expenses during retirement and make the most of your golden years.
- If you choose to sell, how will you do so?
Selling your life insurance policy to a third-party can be a complex process with a lot of confusing paperwork. You can work directly with a provider (who purchases the policy), but this limits the number of offers you’ll receive and requires the most work. Alternatively, you can work with a broker who will work with multiple providers, or you can work with a life settlement company who will handle the paperwork and use their connections with providers and brokers to maximize your cash offer.
Should you sell your life insurance policy?
Think about your current financial footing and anticipate your future needs. Are you equipped to handle living expenses in retirement? Gather information and weigh the pros and cons to determine if a life settlement is right for you.