6 September 2013 0 Comments

What’s Your Old Policy Worth?

what's it worth?If you have decided that you no longer need your life insurance policy, what is it worth?  If it’s a permanent policy you can surrender it to the insurance company and receive its surrender value, less any outstanding policy loans.  But, is it possible that someone might pay you more than the surrender value and if it has no surrender value, is it worth anything?  What about term insurance that has no cash value?

It’s possible that you might be able to sell any of these policies to an investor for more than what you would receive from the insurance company.  This process is known as a Life Settlement.  The investor will pay you more for the policy and then continue paying premiums after you transfer the ownership of the policy to them.  They are betting that when you die the death benefit they receive will be a good return on their investment.

To qualify for a Life Settlement you will need to meet some criteria.  Most investors will not be interested in making an offer if you are not at least age 65 and have a life expectancy of no more than 10 years.  The face amount of your policy must meet a minimum, most likely $250,000.  If your policy is term insurance, it must be convertible to a permanent policy and you might have to exercise that conversion before the transaction is completed.  Here’s a case I was involved in several years ago:

The insured was age 68 with an unusual health condition that would likely result in death in another 8-14 years.  He had substantial permanent life insurance which he planned to keep, but he also had $1,000,000 of term insurance that had to be converted at a much higher premium to keep it in force.  He decided he did not want this policy.  It was worth nothing if he stopped paying premiums.  I asked if his adult children might want to convert the policy and keep it in force.  He said they would not and he did not want to assist them with the premium.

The policy was nearing the end of its grace period, so I convinced him to convert it to a permanent policy, paying a quarterly premium.  I then marketed the conversion policy and was able to receive about $150,000 for him in cash.  Since his total premiums on the term had exceeded $150,000, this sum was received tax free.  That’s a pretty good windfall in any man’s language.

If you fall within the parameters set out above, check out a Life Settlement before you surrender  your policy.

Coming up…Stranger Originated Life Insurance (STOLI)…similar to Life Settlements, but with some potentially sinister connotations.

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