Thinking of selling your life insurance policy to get the cash? Make sure you understand the pros and cons first.
Life settlements are increasingly popular alternatives for older Americans or others struggling with major medical bills, but there are potential pitfalls that should be carefully considered, including the potential for abuse or even outright fraud.
The first step is to understand who you are dealing with and under what terms. Many life insurance policies provide for catastrophic medical events by allowing the policyholder to take a reduced settlement offer in advance. In contrast, settlement companies actually purchase the policy, pay the remaining premiums and collect the cash value upon the death of the original owner.
While there are special instances when this may be desirable, there may also be increased risk of fraud or abuse.
Most people purchase life insurance in order to protect the financial future of their family or other loved ones. Selling the policy for cash in advance may leave dependents at risk or inadvertently expose them to financial hardship.
It’s advisable to speak with your estate planner and insurance agent to understand the full tax and financial implications for your family’s financial future should you opt to exercise the sale of a policy.
There is little federal oversight of the practice of selling life insurance policies, but there has been an increased demand for stricter regulation.