Before You Cash Out Your Life Insurance…

Posted by Matt Simon on Oct 18, 2009

Several H&H clients recently married! They are blending families and some of their children are ready to think about college. So, the question they needed answered was "Is it time to cash in my life insurance policy?"  It's a good question and it's just one of many reasons people think about cashing in their life insurance policies. If you need to access capital and you're thinking of cashing out of your life insurance policy, there are some serious options you need to consider.

  • A cash value on your life insurance policy would mean simply going into your insurance company and saying you no longer wanted the policy. This would likely earn the least amount of money and would be significantly lower than the payout would be if the policyholder died at that time.
  • A life settlement is often considered by the elderly or those with a serious medical condition. Instead of simply asking to cancel the policy, it would require going to a third party and selling the policy to them. Then at the time of death, the third party would receive the benefit rather than the previous policyholder.
  • There is a third option, usually reserved for those who are terminally ill with a life expectancy of less than 2 years. A viatical settlement is similar to a life settlement but yields the highest cash settlement as the third party who purchased the policy recognizes that the terminal illness deems that the policy will be settled in a shorter period of time.

Work with a trusted professional.  When cashing out of your life insurance policy or making a life settlement, it is essential that you work with a trusted professional. Especially when handing over your life insurance policy to someone else for a settlement, it is crucial that you can trust what that person will do with your policy and that you will in fact receive the agreed upon payout.

A life settlement or cash value is not for everyone. You will receive considerably less than you would at death for the settlement of a policy, so be certain this is something you absolutely need to do before making the decision. If you have questions regarding the desire to cash out of your insurance policy, feel free to contact our office.

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