| That insurance policy you're going to cancel is worth money! |
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wheel
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| That insurance policy you're going to cancel is worth money! |
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Haven't seen much on this topic here, but the insurance industry is shaking with this (agents are slobbering over it, insurers are getting skittish).
There's a newer-ish thing in the insurance industry called 'life insurance settlements'. Basically if you have an old policy and are going to cancel it, some companies will buy it from you and keep it as an investment. The really cool thing about this is that they normally pay a percentage of the insurance amount - say 20-30% (pulled that number out of nowhere). So if you've got a $100,000 insurance policy you're going to cancel, you might be able to trade it for $20,000 to $30,000 in cash.
Now, be wary. If the idea that someone's investment is going to pay off in this manner doesn't bother you, the fundamental concept has it's roots in what are called viaticals. Viaticals are the same idea, but on terminally ill people. For a variety of reasons, many of them justified, viaticals got a bad name a decade or two ago. So investors have moved away from folks leaning on death's doorstep and started looking at longer term investments - people with insurance who are still planning on being around for a bit.
Here's an example. Lets say you've got some a million dollars of business life insurance on a key partner in your business. They're 65-70 and are retiring from the business so you don't need the life insurance anymore. I suppose you could cancel it. Or you could contact your insurance agent or a life settelement company and find out how much it's worth to them. Having a company drop say (again, pulling numbers from my butt, though they are not unreasonable) $250,000 of cash on you for that policy that you were just going to cancel? Not bad.
that's why agents are liking this so much. And because now there are insurance policies that are going to stay in force instead of lapsing - well that's why the insurer's aren't liking this idea too much.
If you get into this though, make sure you get a number of quotes from unrelated sources. Don't just grab the first one offered. And make sure you know you don't need the insurance anymore, 'cause you ain't getting it back again.
If you do some googling on 'life settlements', you'll see some more info I'm sure - positive and negative. However! while you'll find some negative information, you'll be hard pressed to actually find a reason why you as a policy owner shouldn't sell your no-longer-needed policy (in other words, alot of the negative press is fud put out by insurers).
caveat: I don't sell insurance (despite appearances), and I certainly don't sell life settlements.
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Fri Jan 06, 2006 5:34 am |
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efflandt
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What type of insurance are you discussing that could be bought out (unless you are sickly and your demise is near)? If it is term insurance, I cannot see where that would have any value unless whoever would buy it out would continue making payments (which would increase as you got older). And if it is a policy with cash value, would they really give you more than the cash value?
I surrendered a policy last year for its cash value. My retirement savings is on track, and I figured that money and the rising percentage of payments that would go towards the insurance cost could do better in a self directed Roth IRA, benefitting me or my beneficiaries instead of the insurance company. But I did not even think of doing that until I had a sizeable nestegg built up to take the place of insurance. If I really needed the insurance for dependents, I would not reliquish that protection for instant gratification of a fraction of that.
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Sat Jan 07, 2006 12:31 am |
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wheel
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quote:
Originally posted by efflandt
What type of insurance are you discussing that could be bought out (unless you are sickly and your demise is near)? If it is term insurance, I cannot see where that would have any value unless whoever would buy it out would continue making payments (which would increase as you got older). And if it is a policy with cash value, would they really give you more than the cash value?
My understanding is that life settlement companies will buy term insurance - likely as long as it can be converted to permanent (which many/most term policies can be).
And yes, they'll likely pay you more than the cash value for a permanent policy.
The industry has split this type of 'secondary market' into two areas. Viaticals are when your life expectancy is < 2 years. Life settlements are for when your life expectancy is 2-12 years. Yes, you'll likely not get anything if you're 40 years old dumping a term policy. If you're 65 and decide you don't need an isnurance policy anymore, this might be something worth investigating.
Previous poster is correct in implying there are dangers if you're dumping a policy you might still need. If you've got a need for money immediately (say for health care costs) but don't dare cancel your life insurance, some insurers will offer you a part of your death benefit upfront. That type of benefit isn't always advertised or contractual and would depend on the individual case I expect.
This type of thing is a large financial transaction that you can't back out of - and should be treated as such. Nevertheless, it's an opportunity that's now open to a lot more people these days - and if you're in that situation you could make a very nice chunk of cash for an asset you don't need anymore (it's always been an asset, it's just now starting to become an asset you can sell).
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Mon Jan 09, 2006 3:42 pm |
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