How Can I Cash In My Life Insurance Policy When I’m Older?

It’s called a “life settlement” and it’s one way seniors can cash in on their life insurance policies. If you’re in your 70s, you may find that your insurance policy no longer meets your needs, and while surrendering a policy back to the insurance company is generally not allowed, a life settlement may be an option.

Those who no longer want to pay premiums or have any need for the coverage are often able to demand higher prices when selling their life insurance to an investor rather than their insurance company. Policies sold by those approaching the end of their lives are particularly valuable, according to a recent report by NBC.

An investor who buys a policy for half of its value can receive a full return on their purchase if the policyholder dies the next day, according to the report. Because life insurance is built up over one’s lifetime, this return can account for a quick fortune.

Its value decreases with every day the policyholder lives after selling his or her policy. Financial adviser Dana Barfield critiqued the kind of mentality this creates, where investors eagerly anticipate their policyholders’ deaths.

“It should not be legal to sell an insurance policy to a third party with a conflict of interest,” Barfield tells NBC.

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But before selling your policy, make sure you understand the fine print disclosed in your existing policy and shopping for the best value. Make sure that you deal with licensed buyers and brokers only. Check with your state insurance commissioner to verify licensed brokers. Also checking with a tax professional before selling would be advised since the lump sum you received can be taxed.

The life settlement industry is fairly new and you want to be cautious of aggressive sales. If you are younger and planning on buying a new policy, you better make sure you can get one before selling the current policy. Your premiums could be higher. If in this category, you may want to consider talking to an insurance specialist about reducing your premiums or switching from one policy to another. This will not create an additional tax burden.

Seniors struggling to stay current on their life insurance premiums may also choose non-forfeiture options, which allow them to forgo cash savings in order to leave behind death benefits. They may also try to reinstate a policy after it lapses.

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