A universal life insurance policy can be complicated; if you look at policy documents you might get lost in the rules and jargon. Unfortunately, some insurance carriers actively try to maintain this unfair advantage by keeping clients in the dark, but seniors have the right to know all of their options regarding their policy.
If you own life insurance, you have three choices when considering the future of your policy:
- Continue paying premiums
- Stop paying premiums and lapse
- Sell your policy
The Advantages and Disadvantages of Continuing to Pay Premiums
Some policyholders find that their life insurance needs have not changed since they took out their policy years ago, and they wish to retain it for the security the death benefit provides. In this case, premium payments continue and the policy is kept in force. But this option leads to increasingly expensive premium payments as the insured gets older due to rising costs of insurance (sometimes known as mortality costs) which protect the insurance carrier from the risk of paying out the death benefit. Rising costs of insurance can sometimes be taken from the cash value of a policy, which can obscure the true cost of keeping it in force. In any case, the longer an individual holds onto a policy, the more expensive premium payments will be.
The Missed Opportunity When Lapsing a Policy
Unfortunately, many policy owners intentionally or unintentionally end up lapsing their policies. In fact, a half-million Americans over the age of 65 lapse about $112 billion in face value of life insurance every year. While this certainly stops premium payments, it also forfeits all of the sunk value in the policy. When they lapse, policy owners receive only cents on the dollar. Many insurance carriers partially depend on these policy lapses to maintain their bottom line, and these lapses represent free money for insurance carriers and a hard loss for policy owners.
An Unrealized Opportunity to Sell a Life Insurance Policy for Cash
Finally, there’s the life settlement option. People whose life insurance needs have changed and no longer want or need their life insurance can sell their policy to a third party for more than the cash surrender value. Not all policies are eligible for a settlement, but those that are offer substantially more value than a surrender. In the life settlement market, policy owners can contact a provider to find out the value of their policy by submitting their policy documents and current health information. The life settlement provider then uses this information to formally price the policy. If the policy qualifies for a life settlement, the policy owner receives the fair market value rather than the insurance carrier’s discounted cash surrender value. The difference between the settlement price and cash surrender value is pure windfall that few policy owners are aware of. Due to the transfer of ownership, all rights and responsibilities of the policy rest upon the buyer’s shoulders, including future premium payments and the death benefit.
Which of the options you choose will of course depend on your needs, preferences and resources. However, if you no longer need or want life insurance, then there is indeed a hierarchy of value. There is a best choice, but to make that choice it is imperative that you know your options. Life settlement is the option that many insurance carriers do not want you to know about, because any value you gain is value they lose. If you own a life insurance policy but no longer need it, you can contact a firm such as Magna Life Settlements to learn more about the process and how much you could gain from your unwanted policy. Lapsing a policy that’s eligible for settlement is like ripping up a winning lottery ticket. Don’t throw away your cash by surrendering for less than what your policy is worth.
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