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Alternatives to life settlements
Life settlements are arrangements in which seniors in declining health sell their life insurance policies for a portion of the face value and receive immediate cash. (See Life settlements: To sell or not to sell.) But life settlement companies aren't required to tell you that there may be many viable alternatives to selling your policy that will still provide you with cash, depending on your situation.
Here are some alternatives to life settlements.
Ask your life insurer for an accelerated death benefit (also called a living benefit)
If you are terminally ill, you can receive partial payout of your death benefit with an accelerated death benefit. You can usually purchase this as part of a whole life policy at the time of purchase or add it later as a rider or endorsement. Some insurers will charge an additional premium for the rider while others will charge you only if you use it. Check with your insurer to see if it offers acccelerated death benefits and to find out the eligibility requirements; not everyone will be qualified.
Tap your policy's cash value
Contact your insurer to find out how much, if any, cash value has built up in your policy. (This applies to whole life policies.) Your can borrow against your cash value for an immediate need or even use it as security for a loan from a financial institution.
|Contact your insurer to find out how much, if any, cash value has built up in your policy.|
Your insurer may have other options available, too. For example, New York Life Insurance Co. has broadened the options available to policyholders to enable them to keep their policies in force. For a list of options go to the New York Life Web site, alternatives to life settlements.
In addition options such as accelerated death benefits, New York Life offers a program called Access Plus, which is available to policyholders of its whole life and universal life policies. Under Access Plus, New York Life pays the future required premiums and may be able to offer a lump sum of cash to you in excess of your policy's cash value. This essentially is taking out a loan against the policy while it is still in effect, with no collateral upfront. The program is for New York Life policyholders who have less than 10 years to live. New York Life reduces the death benefit to pay off the loan when you die; or, you can undo the transaction by paying back the loan.
Cash out the policy based on cash surrender value
By contacting your life insurer and telling them you no longer wish to own your policy, you can surrender it for the cash value and close out the policy. Granted, the surrender value will not be as big as a life settlement, but it's a way to stay out of the life settlement market.
If premium payments are your problem, contact your life insurer. You may be able to convert the policy to a paid-up policy (of lower face value) or lower your death benefit amount in order to reduce your premium payments.
Have your beneficiaries pay the premium
If you can no longer afford the policy premiums but don't want to deprive your beneficiaries of a future death benefit, give them the option of paying the premiums themselves.
Take out a reverse mortgage
This is a loan that you take out against your house that you don't have to pay back while you are alive. You can receive payment in a lump sum, as a monthly payment or as a credit line. To be eligible for most reverse mortgages, the National Reverse Mortgage Lenders Association points out that owners of the title must be at least age 62 and have equity in the home.
When you die or no longer live in the house, you or your estate pay back the lender (generally through the sale of the house). For more information, download a reverse mortgage booklet at the National Reverse Mortgage Lenders Association.
Liquidate other assets
If you want to maximize the value of your estate, consider what other assets could be liquidated in order to keep your policy in force.