One decision that our clients are often faced with is should I do a life settlement? A life settlement allows a policy owner to sell their life insurance policy to a third party for a cash payment. The decision to do a settlement is an individual decision and depends on each person’s and families individual circumstances.
Advantages of a life settlement:
• If you are paying for life insurance and no longer have a need for the death benefit, you can stop paying premiums and with a settlement get cash now.
• It will provide more cash for living now.
• It can provide cash for long term care expenses, children’s or grandchildren’s education.
• It may provide more cash than just accepting the insurance company’s offer of cash values and you can use the extra cash for whatever you desire.
• Some of the gain on sale of your policy, in a life settlement, may be taxed at favorable Capital Gains tax rates.
The disadvantages of a life settlement are:
• Once the policy is sold the death benefit belongs to a third party.
• The payment will be less than the policy’s death benefit.
• Each person has a maximum amount of insurance that will be allowed on his or her life. The sale of the policy to a third party eats into that maximum death benefit amount.
• There will probably be taxes due on the sale of the policy.
• If you sell your policy, and later you want more life insurance it may be hard to find better rates than what you already had.
This list is by no means complete, but gives some things to think about when answering the question, should I do a life settlement?
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