Having a life policy basically ensures that when you pass away; your beneficiaries can have a fund to help them cope with life after your demise. But what happens when the policyholder wants a life settlement instead? Before we look into that, let’s first define the term life settlement.
Life settlement refers to the act of selling a life policy to a third party, which can be a person or entity, to receive a one-time cash payment. The major consequence of doing this, however, is that the policyholder will receive money that is less than the net death benefit but more than the cash surrender value. So the question that is commonly asked is: when is the right time to take a life settlement? Below are some pointers that seek to explore the matter and try to decode this question in detail.
Current Insurance Needs
As time goes by, the financial status of a policyholder is bound to change. With this in mind, you may decide to look for another policy based on two factors: you may no longer want or need the current one, and you may want to buy new policies in another insurance company. As a move to help reduce their expenses, some people take a life settlement when they can no longer pay the premiums that come with a life policy.
In this scenario, a life settlement can be a better deal since defaulting on insurance payments can put you at risk of losing your saved premiums. However, it is important to note that not all life settlement firms are equal. According to Steven Shapiro from Life Settlements, it’s important to shop around and compare several life settlement companies so you can choose the best. Whether you’re working directly with a provider or you’re using a broker, there’s a number of things to consider when picking a life settlement firm. Some of these may include:
- Bonding and insurance
- Experience and a good reputation
- How long it takes the company to process your settlement
- How safe will your confidential information be?
Considering some of these things before making your decision can help prevent inconveniences and unforeseen drawbacks such as the process taking too long when you need cash fast, or your private information falling into the wrong hands.
In the secondary life policy market, sometimes there’s no transparency. It is also very difficult to ascertain whether you will be getting a fair amount of money in your life settlement as it usually differs greatly from one person or entity to another. Of course, you’ll shop around to get the best amount of your life settlement, but this may also end up costing you a considerable number of resources and time. However, there comes a time when you’re out of options and you need cash to fund a huge need. Perhaps you’re terminally ill, you need to fund a huge purchase, or you have people on your neck and filing bankruptcy is not an option. In such a time of urgency, a life settlement can be the most practical move for you.
Before taking out a life settlement, you should first consider the financial implications of that decision. If you were in a government program, say a medical program, taking a life settlement may negatively impact your ability to be a participant. The beneficiaries of your life policy are also a factor to be considered as well. Are you confident that they will be able to cope well after your demise? While the answer may be yes in the present, will this be the case in the future, given the fluctuating economies around the world?
In this particular scenario, taking a life settlement may not be the best move as there are many factors beyond your control that could negatively impact you and even your beneficiaries. On the flip side of this, in some instances, taking a life settlement would be necessary. These may include health emergencies, when facing house foreclosure or for your dependents school fees. In these instances, it would make financial sense as it will help you deal with the aforementioned financial emergencies and you can still get another life policy later once you sort out the issue at hand.
The decision to take a life settlement is purely a personal one. While there’s no common consensus on which situation or time is best for one to opt for a life settlement, it ultimately depends on the needs of the policyholder. Hopefully, the above pointers shed some light on various reasons one would want to take life settlement.