• About
  • Mortgage Basics
  • $40K Challenge
  • Aunt Doris
  • Grandfather Says
  • Privacy
  • Archives

Len Penzo dot Com

The offbeat personal finance blog for responsible people.

The Pro and Cons of Paying for an Aging Life Insurance Policy

By Tex Freitag

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.

The Options

If you own life insurance, you have three choices when considering the future of your policy:

  1. Continue paying premiums
  2. Stop paying premiums and lapse
  3. 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.

The Choice

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.

Photo Credit: istockphoto.com

3 Comments October 19, 2018

Comments

  1. 1

    TnAndy says

    If your policy has “cash value”, you bought too little of the wrong kind to start with.

    Always buy term life….same as you do on your house, car, boat, farm, and so on.

    Reply
  2. 2

    DM says

    Thanks for this. Good article. What are some tips to buy an aging insurance at cheaper premiums?

    Reply

Trackbacks

  1. Black Coffee: Figuring Out the Difference Between Crazy and Insane – Len Penzo dot Com says:
    November 24, 2018 at 6:48 am

    […] The Pros and Cons of Paying for an Aging Life Insurance Policy […]

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Question of the Week:

What did you do with your latest COVID stimulus check?

View Results

Loading ... Loading ...

Recent Posts

  • 7 Signs That Tell Smart Stock Market Investors It’s Time to Sell
  • I’m Stumped: 7 Perplexing Money Questions Without a Good Answer
  • Black Coffee: A Land of Confusion
  • Which Sectors Got a Real Boost in 2020?
  • The Top 10 Ways to Quickly Make $500 in 2021
  • How Home Crowdfunding May Let Millennials Live the American Dream
  • 3 Important Tax Deduction Rules You Should Always Remember
  • 5 Ways You Can Save Money on Groceries This Week
  • Economic Collapse 101: How to Prepare for Water Supply Disruptions
  • Black Coffee: Painting the Town Red

Disclaimer

This site is for informational and entertainment purposes only, and the content herein should not be mistaken for professional financial advice. In fact, making investment decisions based on information published here, or any other website for that matter, is more than unwise; it is folly. This website accepts advertising in the form of monetary and other compensation; as such, topics of discussion are occasionally influenced by these advertisers. Sometimes, an article may also include affiliate links, meaning, at no additional cost to you, this blog earns a commission if you click through and make a purchase (for example, as an Amazon Associate I earn from qualifying purchases). Remember, you and you alone are responsible for the decisions you make in life, so please contact an independent financial professional for advice regarding your unique personal situation.

Sign up for the weekly Len Penzo dot Com newsletter
Len Penzo dot Com Delivered Weekly
Join more than 30,000 readers and fans who enjoy personal finance and macroeconomics with an offbeat twist!
Invalid email address
Thanks for subscribing!

Popular Now:

  1. 1. A Simple Test to Know If It’s Better to Rent or Buy a Home
  2. 2. My Cola Taste Test: Is Coke Really Better Than Pepsi?
  3. 3. My 10 Commandments of Personal Finance
  4. 4. The Best Personal Finance Book I’ve Ever Read
  5. 5. Planning a Wedding? Here Are 9 Ways to Ensure You’ll Pay Too Much
  6. 6. 5 Things Nobody Tells You About Being Poor — for Good Reason
  7. 7. 4 Good Reasons Why Some Quarters Are Painted Red
  8. 8. 3 Great Hobbies That Are Investments Too
  9. 9. 10 Red Flags That May Signal You’re In Serious Financial Trouble
  10. 10. Are Gas Clothes Dryers Worth the Extra Money?

All-Time Most Popular:

  1. 1. 19 Things Your Suburban Millionaire Neighbor Won’t Tell You
  2. 2. Dear Friend: Here Are 41 Reasons Why I’m NOT Lending You the Money
  3. 3. Why Your Expensive Luxury Car Doesn’t Impress Smart People
  4. 4. If You Can’t Live on $40,000 Annually It’s Your Own Fault
  5. 5. 21 Reasons Why Corner Lots Are for Suckers
  6. 6. 4 Smart Reasons Why College Isn’t for Everyone
  7. 7. 18 Fast Facts About Social Security Numbers
  8. 8. My Ketchup Taste Test: Upset! Guess Which Brand Topped Heinz
  9. 9. Why I Prefer a Spreadsheet to Track Expenses and Manage My Finances
  10. 10. Here’s a Simple Trick for Getting Credit Card Interest Charges Waived

Copyright © 2021 Len Penzo dot Com · All Rights Reserved · Designed by Nuts and Bolts Media

Copyright © 2021 · Penzo on Genesis Framework · WordPress · Log in