Life settlements are very popular these days. That being said, there are some disadvantages you need to be aware of. Said cons are the subject of this article. 

Life settlements are the act of selling you life insurance policy to a third party in exchange for a lump sum cash payment today. The payment is based on a percentage of the value of the policy. In exchange, the investor takes over the premium payments on the policy and receives the entire death benefit when you pass on. 

The first negative to consider with life settlements is the loss of the death benefit. We all buy life insurance as part of a plan to create cash for someone upon our death. That person is usually our spouse or heirs. Selling your policy obviously countermands that goal.

So, why would anyone sell given this negative? The answer is primarily two fold. First, you might simply need cash now to pay for things like medical bills, professional care and so on. Second, events have changed in your life wherein there isn’t a need to care for a spouse or heirs any further. One example would be a life insurance policy with your spouse named as the beneficiary, which is really not needed any long because she or he passed away before you. 

A second negative is one more of perception. It has to do with the fact you are taking a discounted amount versus the value of the policy. Let’s say you have a $1,000,000 policy and sell it for $300,000. That is a $700,000 discount at first glance, but not with a closer look. The discounted amount is really a reflection of time. What are you willing to take as a discount to get money now versus never getting it since the policy will pay out on your death? Money in hand is usually considered a bit more valuable, particularly in these times.

If you would like to discuss both the pros and cons of life settlements as well as the options available to you, please contact us at (800) 341-5433 or via this contact form for a no pressure consultation.