Understanding life settlements and their benefits to individuals can be a source of confusion at times. What exactly are they? How will I benefit financially? Is now the right time to consider a life settlement? This article will help you gain a better understanding of life settlements and their potential benefit to you. To get an immediate quote for your policy, try the new life settlement calculator to help determine if you qualify.
Life insurance policies that would have simply lapsed, after decades of paying premiums to insurance companies, are instead being sold for cash, directly benefiting the individual consumer. So, yes, life settlements and viatical settlements have helped a lot of people sell a life insurance policy for cash. However, consider some of the potential drawbacks of a life settlement as these points will help you determine if a life settlement is actually a good option for you.
1. Creditors may seize benefits.
For those who owe substantial medical bills and have significant debt, the proceeds from the life settlement can be seized to repay those debts. However, a life settlement can pay medical bills before you get this far behind.
2. Eliminates money that would be left to beneficiaries.
When you took out your life insurance policy you had a specific beneficiary, or beneficiaries, that you wanted to provide money to at the time of your death. A life settlement eliminates the financial benefit realized by beneficiaries. However, the money you receive from the life settlement can be shared with your beneficiaries while you’re alive.
3. You may outlive the added cash.
Many people accept life settlements with the expectations that the financial gain will see them through to the end of their lives. This is not always the case. Life expectancy continues to increase, making outliving the proceeds a possibility.
4. Life settlements can be taxed as income.
According to the current tax code, the proceeds from life settlements are partially taxed as income. Taxes are assessed using the formula that the total amount of premiums are subtracted from the settlement amount. The overage is taxed at regular income tax rates rather than as capital gains. A tax professional can provide you further guidance on the tax ramifications for you.
When to consider a life settlement
A life settlement is a strategy which is used for an individual to sell their life insurance policy to a third party for a sum of money that is greater than the cash surrender value of the policy, but less than the actual death benefit (or face value).
In this event, the purchasing organization will be responsible for all future payments of premiums and receive the death benefit when it is paid out.
Life settlements have proven to be of great benefit to many. The ideal candidate is generally 65 years of age or older and has a life insurance policy that exceeds $100,000 in value. While it doesn’t pay the face value of the policy, it does pay much more than allowing the policy to lapse.
Many retirement plans were depleted during the most recent economic downturn. For those people adversely affected, a life settlement can provide the means for someone to maintain their standard of living and pay for other expenses, such as medical bills.
Providing extra money during retirement is just one benefit of life settlements. As people age, they many no longer see the value of paying life insurance premiums with children grown and having other sources of income for a surviving spouse. Saved premiums can help fund a better lifestyle now, instead of providing unnecessary benefits later.
Individuals that are terminally ill can employ a viatical settlement as a means of supporting themselves when they are unable to work, or to help pay off costly medical expenses. They are fortunate to have paid their premiums and can realize a “living benefit” from their policy.
Misconceptions Concerning Life Settlements
Life settlements are sometimes misunderstood. One misconception is that they are the same thing as viatical settlements. While there are many similarities, a viatical settlement requires the person selling the policy to be terminally ill and often have a stipulation that their life expectancy be less than two years. This is not the case with life settlements.
Some believe that life settlements have a negative effect on insurance companies and increase the cost of insurance. Life settlements don’t negatively impact premiums because the policy doesn’t lapse. Premiums are still paid until the insured passes away. or the policy is surrendered
Six Reasons To Consider a Life Settlement
Listed below are some of the benefits of a life settlement to help determine if this is a viable option for you. While life settlements aren’t the right financial strategy for everyone, it’s a good idea to understand the benefits and what you have to gain.
1. Get access to a single cash payment.
Financial setbacks can happen quickly. The need for liquidity is important. A life settlement can be a good source to provide the money needed when a financial crisis occurs.
2. Create additional monthly income.
Life settlements can be designed to provide a monthly income rather than pay out a lump sum. This can help balance a household’s monthly budget, as well as supplement any other sources of income you’re receiving.
3. Provide the money to enjoy retirement.
When you’re working it can be difficult to find the time to enjoy travel and the finer things life has to offer. Life settlements can provide you the money to enjoy the things that you just didn’t have time for, as well as maintain your standard of living.
4. Fund medical or hospice care.
Life settlements can help fund needs like hospice care, medical expenses, and expenses incurred while seeking treatment. Some people also utilize life settlements to help fund long-term care needs.
5. Give gifts to family members or charities.
Rather than leave the proceeds of a life insurance policy when you pass away, a life settlement provides you the opportunity to build fond memories while you’re alive.
6. Relieves the burdens of monthly insurance premiums.
After a certain age, term life insurance premiums can become exorbitant and unmanageable. This is one reason so many policies lapse each year, without a death benefit being paid after years of premium payments. Life settlements allow you the opportunity to recover some of the money you’ve paid in premiums over the years.
It’s advisable if you’re considering a life settlement that you take the time to determine if this is the right option for you, considering your personal situation. Windsor Life Settlements has the experience to help you make an informed decision. Schedule a no-cost consultation today to get all of the facts and see if a life settlement is right for you.