Struggling to Pay Your Life Insurance Premiums? Know Your Options

Mar 22, 2017 12:07:00 PM / by Darwin Bayston, CFA

If you're struggling to make ends meet in retirement, you're not alone. And when your income is limited and fixed, you do your best to cut out unnecessary expenses.

One expense that can be tough for some seniors to manage is the premiums on their life insurance policies. Perhaps your carrier raised your premium unexpectedly, maybe the costs from a health event have strained your budget or it could be that your retirement fund is just running low. If you feel your life insurance premiums are too expensive, you may decide you no longer need the policy.

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Alternatives to surrendering a policy

Unfortunately, many seniors think their only option in this situation is to lapse or surrender the policy. In fact, each year seniors older than 70 lapse or surrender more than 710,000 life insurance policies, with a combined face value of more than $57 billion, according to the Life Insurance Settlement Association (LISA). However, you have alternatives that are more beneficial than simply surrendering the policy. For example:

* You could maintain the policy through loans against its current value;

* You might be able to seek an accelerated death benefit, allowing you to take some cash out now;

* The policy may be convertible into a long-term care health insurance policy, or if it's a term policy you might be able to convert it into permanent life insurance;

* Reducing the death benefit to a lower face value could lower the premiums, making the policy more affordable; or

* You could assign the policy to an individual or a non-profit organization as a gift.

Another option to lapsing or surrendering the policy — one that can actually put the most amount of cash directly into your pocket — is to consider selling it through a life settlement transaction.

Selling a policy

Life insurance is personal property, so you can sell it just like any other property you own. When you decide to sell the policy to a third party — rather than surrendering it to the insurance company — you get more than the cash value, but less than the death benefit amount. The buyer of the policy takes on all future premiums and receives the death benefit when you pass away.

In order to qualify for a life settlement, you must be 65 or older with a life insurance policy that has a death benefit of at least $100,000. The amount of your settlement will depend on several factors, including:

* The death benefit, which is the amount the buyer will receive when you pass away;

* The amount in annual premiums that the buyer will pay; and

* The number of years the buyer can expect to continue paying the premiums.

On average, a life settlement yields seniors seven times the amount of the policy's cash surrender value, LISA says, based on an analysis of a survey by the U.S. Government Accountability Office. In fact, 90 percent of seniors with lapsed policies say they would have considered selling it if they had known life settlement was an option, an Insurance Studies Institute survey found.

To learn more about life settlements, how they work and if you're eligible, call (888) 521-8223 or visit LISA's website at www.lisa.org.

Tags: life settlement, Life Insurance Settlement

Darwin Bayston, CFA

Written by Darwin Bayston, CFA

Darwin Bayston is President and CEO of the Life Insurance Settlement Association (LISA). His charge is to extend the outreach of the Association to all participants of the life settlement industry from consumers to capital providers, including producers, brokers, providers and service providers who are part of the life settlement market. He was previously Managing Director of Life Settlement Consulting & Management (LSCM), founded in 2004 and specialized in life settlement policy and portfolio valuations, and life expectancy analysis. He has published several articles and participated as speaker at a number of life settlement conferences. Previous to that he operated an investment advisory firm. From 1980 to 1993, he served in several capacities, including President and CEO the CFA Institute (and its predecessor organizations). While at CFA, he founded the continuing education program, was editor of the CFA Digest and supervised research projects funded by the Research Foundation of the ICFA. He began his career as an investment analyst with a Midwest life insurance company. Mr. Bayston has been Chairman of the Martha Jefferson Hospital Foundation ($100 million), a member of the Hospital’s Finance Committee and a past member of the Board of the Institute for Quantitative Research and Finance (Q Group).