Selling Your Life Insurance Policy
One of the hidden financial resources that some people have is a life insurance policy that was acquired either individually or as part of a group benefit from one’s employer or organization. Traditionally, life insurance policies were intended to provide a financial benefit to one’s surviving loved ones after the insured died. Called a “death benefit”, the face value of the policy (plus cash value, if any) was intended to provide full or partial financial security to settle incurred medical bills, pay off mortgages, or serve as a nest egg to compensate for the loss of income the insured had provided to their loved ones during their life.
In the early 90’s, life insurance policies evolved into a financial tool to be used by the insured during their lifetime if they were diagnosed as terminally ill. Forgoing unexpected sudden death, illness can be an expensive journey, particularly if one is unable to work due to their illness. Caregivers, special medications not covered by insurance, travel, medical equipment, etc can quickly drain savings and investments. Why could not the insured use the death benefit to cover these costs during their lifetime, thus improving quality of life when quantity of life becomes limited with a more foreseeable expiration date?
Thus, the concept of “viatical settlements” was born. The word “viatical” is etymologically derived from the word Latin word “viaticum” which means to provide sustenance for one going on a spiritual journey.
The concept is relatively simple: A terminally ill person (the “owner/insured”) will receive a percentage of the death benefit based on life expectancy, projected premium payment cost, and rating of the insurance company. Simply put, the shorter the life expectancy the higher the percentage one will receive from the death benefit; the longer the projected life expectancy, the less percentage one will receive from the death benefit. Influencing these percentages will be how high or low the premium cost will be over the expected life expectancy of the insured. The higher the rating of the insurance company, the higher the percentage will be of the payout.
The concept of how a viatical settlement works is relatively simple but the formula and process can be complicated and one should seek guidance from one’s Medical Case Manager on how to navigate this negotiation. Your Medical Case Manager will know what questions to ask, how to stage your profile for the best possible settlement from your life insurance company, and handle all the time consuming and cumbersome paperwork. Your Medical Case Manager will also strongly advise you to consult with your financial and tax adviser as to whether or not this is the smart thing for you to do financially. For example: U.S. Federal Law exempts the sale of life insurance policies if the insured’s life expectancy is less than 2 years. If it’s greater than that, then the proceeds could be subject to income tax. Depending on one’s personal financial circumstances, this can make such a viatical settlement more or less attractive.
As in any business transaction, offers from viatical settlement companies are subject to negotiation to some degree. A seasoned Medical Case Manager will know how to get you the very most for your life insurance policy.
What if a person is not terminally ill but elderly and/or chronically ill and can no longer afford the escalating premium payments on their life insurance policy? Shouldn’t they just lapse the policy and bank the money they are paying out in high premiums?
Answer: ABSOLUTELY NOT! The solution can be a Life Settlement which is designed for the elderly and/or chronically ill, not the terminally ill.
See our upcoming article on LIFE SETTLEMENTS.
To learn more about selling your life insurance policy, send us an email to: email@example.com