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What to Know Before Selling Your Life Policy

While it’s not as popular an option as it was in the 1980s, selling a life insurance policy through a life settlement (or, for the terminally ill, a viatical settlement) is still an option explored by many seniors in need of some funds to help pay for medical and living expenses in retirement.


There are pros and cons to life settlements, just as there are to any financial decision you make. In this blog post, I want to talk about a few of the biggest points of consideration for those contemplating the sale of their policy. Please note, however, that no decision you make should be based on reading a single blog post. You should still meet with an agent or financial advisor to determine whether life or viatical settlement is a viable route for you.


Benefits of Life Settlements


  • While there are age restrictions for life settlements, there is no medical exam, which means you can be in good health and still sell your policy. In a viatical settlement, however, the insured must have received a diagnosis of terminal illness.
  • A life settlement involves the transfer of ownership of a life insurance policy. The payment for this transfer is generally more than the amount of cash value in the policy but less than the death benefit. There are also no surrender charges when you sell your policy.
  • When you sell your policy through a life settlement, you will generally receive a lump sum payment, which you can use for any purpose.


Drawbacks of Life Settlements


  • Once you’ve sold your policy, there won’t be any death benefit left for your loved ones when you pass away.
  • Unlike a loan from cash values, a life settlement may result in a taxable payment.
  • Once you sell your policy, the buyer may have access to sensitive information about you and your family through the policy document. In addition, they may be permitted to resell the policy to another buyer.
  • A large cash settlement can affect qualification for food stamps, Medicaid and other assistance programs.


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