More and more lately at an earlier age, retirement starts to become a serious consideration at the start of our careers. Unfortunately, many Americans do not accumulate enough money over their careers to fund a sustainable and comfortable retirement by the time they reach the age of 65. Luckily, if you currently own a life insurance policy, you may have a large lump sum of cash waiting for you.
Life insurance settlements can be sold, just as they were purchased, and institutional investors are always looking for ways to diversify their portfolios. In turn, they offer policyholders cash for their life insurance policy, ultimately leading to an assured way to receive a return on their investment.
What is a Life Insurance Settlement?
In the 1980s, viatical settlements gained significant popularity as a way to provide cash liquidity to AIDs patients and other terminally ill individuals who had an estimated life expectancy of fewer than two years. Life settlements came as an offshoot of the viatical settlement industry in the early 2000s. A life settlement simply allows a third party to purchase an individual’s life insurance policy. The policyholder may choose to release their policy for a variety of reasons. Unlike viatical settlements, life settlements do not require policyholders to be terminally ill but those with life expectancies of less than 10 years will likely receive the highest net death benefit for their policy.
Why Should Someone Sell their Policy?
If this is your first time being introduced to life insurance settlements, you may be a bit confused about how selling a life insurance policy works. It starts by finding an investor interested in purchasing your policy. The investor will pay you a lump sum of money equal to a portion of your policy. However, upon the death of the policyholder, the investor will receive the full sum of money from your policy.
While the policyholder may not receive the full amount, the money in a timely manner can help improve the policy holder’s quality of life in ways that would have been impossible had they not settled. Life settlement policies can be used be to pay off debt, start a new business, or relocate to a new country, among many other things. Policyholders may also sell their policy if they simply no longer have significant use for their life insurance policy. Life settlements can give you the opportunity to do things that are important to you and potentially create more income for your beneficiaries than would be produced from the execution of the original policy.
Life Settlements and Retirement Funds
Life settlements are often associated with retirement funds simply because both are available to consumers when they reach older ages. Studies show the majority of Americans don’t feel they have enough funds to support themselves through retirement. Many don’t realize that retirement is around the corner and aren’t sure how to set themselves up for financial success in retirement.
If you find yourself in this situation but have a life insurance policy you may not want, a life settlement could be an option for you as they are a great way to complement the funds you may already have from contributing to a 401k. Additionally, your life settlement may be enough money to replace a retirement fund altogether.
The average life settlement is valued at $1.25 million dollars according to Forbes Magazine. With the majority of Americans retiring at 65 and living until 80 years old, this lump sum is enough to survive on for about $85,000 a year for the entirety of retirement. However, each life settlement is valued differently depending on a variety of factors specific to the policyholder.
While it is a best practice to have a backup fund ready upon retirement, a life settlement could be an option as it allows you to supplement your existing 401k or replace it altogether.
If you are looking to sell your life insurance policy, but are unsure of where to start, check out our variety of resources. Additionally, we can help find you a provider to help you begin your journey to a life settlement.