Life insurance is a smart investment for any twenty-something or thirty-something adult, especially for those with spouses and families to support. In the event of a life insurance customer’s death, the life insurance company will pay out a settlement that can make a massive difference to the beneficiaries. Death is a surprisingly expensive thing, and losing a major source of household income can be devastating. A life insurance payout can really save the day during an incredibly difficult time.
So why would you ever sell your life insurance policy and its benefits away? Well, if you’re in your twenties or thirties, you wouldn’t. But as we grow older, we work hard to save money and build a safety net of our own. When we’re older, and especially after we retire, our loved ones don’t necessarily need the life insurance payout. In other words, life insurance isn’t always worth it! At that point, our life insurance becomes an illiquid asset that doesn’t do much for us even in the long term; the payout is nice, but unnecessary. By contrast, cash could be necessary or beneficial for all sorts of reasons. Here are three such reasons that cash could be king; if they mirror your situation, you may want to consider selling your life insurance policy.
You don’t really need the policy anymore
If you’re older and retired, then your death would not be the financial strain on your family that it might have been a couple of decades ago. That’s a mark of your success and your love of your family. Congratulations!
Of course, a life insurance payout won’t hurt, but since it’s not necessary, you may want to settle the policy and get some cash instead. That is cash that you could use to maximize your enjoyment of life in the years that you have left. People always talk about going to Hawaii but few actually do. Use your payout to take your loved ones to one of Hawaii’s famous islands for a vacation. Invest in surfing lesson training from an expert in Waikiki. By doing so, your money goes even farther, providing you with a time to memories and a new skill. Learning how to surf is a fun way to stay active while enjoying some time out on the water. Whether you’ve surfed once before or have never hopped on a board, it’s never too late to learn.
You’re dealing with medical bills
Getting sick can be a serious problem — especially in America where medical bills are all too often a cause of debt and bankruptcy. Medical debt can get out of hand fast, and when you’re drowning in bills and credit card debt, you can easily find your principal and interest mounting faster than you can pay it down. (This causes the cycle of debt — more on that later!) In such a situation, you need cash a whole lot more than you need your eventual life insurance payout.
That’s why life settlements and viatical settlements exist. In fact, viatical settlements — which are only available to those whose life expectancy and health situation meet certain conditions — are designed for precisely this dilemma and are not taxed by the government.
You’re dealing with debts that could eat into your estate
There is, of course, a downside to a viatical settlement or life settlement: Your beneficiaries will lose the payout that would otherwise be coming their way when you pass away. That’s a shame, and it may give you pause as you consider your options. By selling my life insurance policy, you may wonder, am I hurting my loved ones’ financial futures? Be aware, though, that leaving your policy untouched may not actually be the best thing for your loved ones!
Sure, not selling your policy means that your beneficiaries will get the payout. But your loved ones are also, presumably, your heirs. If you don’t use the financial tools at your disposal to pay down your debt and keep yourself financially stable, you could end up losing more in wealth than the insurance policy is worth. That’s less for your heirs to inherit.
The cycle of debt is all too real, and failing to pay off credit card bills, loans, and medical bills now could create higher costs for yourself and (later) your estate and heirs. So use the tools you have! Speak to a financial advisor about selling your insurance policy today.