The COVID-19 pandemic truly disrupts the way of life for the year 2020. It does not only affect the health of the infected, but it also halts the global economy to a stand-still, with so many uncertainties ahead and casualties behind. You must check out this life settlement calculator and calculate your risk.
Coincidentally, insurance companies are also being hit with many hard decisions with so many claimants and insurance policyholders are in a panic in paying their premiums due to savings deficit. Now, there seems to be confusion to these poor policy owners on what would be the next step. Fortunately, there is a silver lining and that is the option for a ‘life settlement’.
What is a Life Settlement
For a simple definition, a life settlement is a term used for payment to the policy owner that amounts more than the cash surrender value (sum of payment by an insurance company to a policyholder who voluntarily terminates his/her policy before maturity occurs) but less than the death benefit value (the total amount paid to the beneficiary after the policyholder dies).
This is typically applicable to senior citizens. When you have an insurance policy and still obliged to pay premiums but you need cash at hand, then you can have the option to surrender your policy and obtain the amount, which we call ‘cash surrender value’, or explore for a ‘life settlement’ by having your policy sold to a secondary market and pay you the amount.
Why is it not Popular
According to research, more than half of the policyholders are not exposed to this said option since the insurance agents are not willing to share this information.
The obvious reason is that the insurance company can profit more when policyholders tend to surrender their policies rather than having life settlements. Insurance agents are probably coerced to their marketing practices by their bosses.
How it is Processed
The policyholders or policy owners will explore to the secondary market. Their current policies will be offered by brokers to bidding processes, after all the legalities are cleared, and have the buyers or providers pay according to the bidding amount. After that, the brokers will give the payout to the sellers.
Since this typically affects the seniors, then medical documents are of great importance. And if the payment received is greater than the sum of premiums paid, with inflation adjustments, it will be subjected to taxation. A life settlement can take any form with monetary value but usually, most people preferred it as cash.
Now with different options, the policyholder can obtain the cash and all that is needed is a proper strategy. For insurance agents, although it may sound against the company practices, and honest financial education is much desired in such harsh times like this ongoing pandemic.
A life settlement is tempting for receiving money more than the cash surrender value but it is not an easy process. It involves a lot of trust from several ‘middlemen’ before you get what you are aiming for.
That is why you got to have financial education in order to maximize that option or if you want convenience mostly due to the urgency, then a ‘surrender’ is gladly welcomed by insurance companies.