What To Know About Cash-Out Life Insurance Options
Protecting your family by taking out a life insurance policy when you were young was responsible and financially sound. You have faithfully paid your monthly policy premiums for over thirty years.
The two beneficiaries of your life insurance are your two children, who you have been well educated, provided for, and fortunately, now have successful careers.
Troubles Of Your Own
Life, however, has its share of troubles and can force one to consider reordering their financial priorities. Having lost my spouse and my business, I have reached the point of economic hardship, which was not what I expected in my senior years.
I am steadfastly against having to go to your children for financial help. So I am considering cashing out my life insurance policy so I can afford to transition into a less expensive but reasonably comfortable lifestyle.
What Is A Life Insurance Cash-Out Settlement?
A life insurance cash out, also called life insurance settlement, is when one sells their life insurance policy for a specified sum of money that is less than the full death benefit under the policy.
This is called the cash value of the policy.
How does a cash-out settlement work?
In essence, the third-party buyer of your policy becomes the legal beneficiary of the death benefit in exchange for the cash you receive from the third party. In addition, the third party assumes the legal obligation to make all future premiums on the policy.
These types of transactions are part of a rapidly growing industry. You can choose to contact a life settlement company directly or choose a broker to help you shop for the highest cash settlement available. Companies have different exchange rates concerning how much they will pay for the death benefit.
Possible Tax Implication
Will the third-party buyer require my disclosure of my medical information?
You may be asked to complete an application and sign a release allowing the potential third-party buyer of the policy to access your medical records to evaluate the value of the settlement. After assessing your current medical condition against the anticipated cash value of the policy upon your death, the company will be prepared to make you a formal offer.
What happens should I accept the offer?
Legal documents are drawn upon your acceptance of the offer, and an escrow account is opened. You will receive the money, and the third party will receive the legal right to collect the death benefit. You are paid upon the successful closing of escrow.
Other Factors To Consider Before Making A Cash-Out Life Insurance Decision
- Consider discussing the matter with your family and close friends.
- Obtain the assistance of an independent financial adviser.
- Determine the cash value of your life insurance policy from an independent policy appraiser.
- Try to get at least three separate offers. A trusted insurance broker can facilitate this for you.
- Find out if your testamentary beneficiaries will pay the remaining premiums on your policy to protect their inheritance.
- Find out if the potential third-party buyer of the policy is legally licensed to do business in your state.
- Determine if you must pay taxes on some or all of the money you receive.
- Find out if your cash will affect your eligibility for future government benefits such as Social Security.
Locate An Independent Financial Counselor For Advice
For more information on your cash-out insurance options, consider consulting with a verified financial counselor.
