The Pros and Cons of a Life Settlement
Jun 27, 2021
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A life settlement refers to a life insurance policyholder selling their policy to a third party in order to receive a lump sum of cash. There are plenty of reasons that policyholders decide to do this, with the most common reasons being to pay large medical bills or to spend their final time on Earth how they would like. To complete the process, individuals usually work with a broker or life settlement company in order to find an investor. The process has become fairly straightforward, though eligibility tends to be rather strict, depending on the state. Moreover, there are pros and cons to this procedure. The right amount of research will help you get cash before your plan expires and you’re out of luck.The Pros of Life Settlements
Of course, the biggest benefit is the lump sum of cash you will receive, often bigger than what you would receive if you simply surrender your policy. These finances can help with long-term care costs for yourself down the road, which you can delegate how you see fit. Naturally, you can use the finances short-term as well, with many using the cash to pay for other bills and debts or on such things as travel. Additionally, by selling, you don't have to worry about paying those pesky premiums every month, as they become the investor’s responsibility.
The Cons of Life Settlements
There are always cons to every financial decision, and this is no different with life settlements. The biggest factor to consider is that those listed as beneficiaries will be removed, with the investor of your life insurance receiving all benefits instead. Therefore, to avoid any potential issues, you have to ensure that your beneficiaries are financially secure or will be okay with not receiving funds down the road. Moreover, taxes are nearly always an issue, and you can expect to find a higher tax bill the next time you file your taxes due to capital gains. Finally, you may lose current medical benefits with the sale of your life insurance, which can be detrimental if you still require aid with health matters.
Is a Life Settlement for You?
To even begin this process, you need to meet certain requirements. For most states, you will have to be at least 65 years of age, and in some states, the age raises to 70. If you do meet this requirement, you will need to do some research before being able to make any final decision. Look over your current policy and ask yourself, does it allow you to make a sale? How much cash value do you have? Are there any other restrictions with your specific policy? If you find that you can receive a good amount of cash, you will need to ensure you are working with a licensed broker or agency, as working with one that is not legitimate can lead to more financial issues and even fraud. In the end, if you meet all requirements and can complete the process smoothly, a life settlement may be a good option for you.
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