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Guard Your Wealth for Seniors
When Your Life Insurance Is A Pot Of Gold
by Jeffrey D. Voudrie, CFP
Nov. 15, 2005 - Don’t cancel your life insurance
policy without reading this first! Depending on your situation, you may
be losing tens of thousands of dollars if you do. If you have a life
insurance policy that you no longer can afford or need, consider selling
the policy. Read on to find out how.
Lots of investors have life insurance. Most people
think the only way to collect on a life insurance policy is to die
first. But there’s another way to benefit financially from a policy
while you’re still alive and kicking. It’s called a life settlement.
There are a lot of companies that buy life
insurance policies. These companies aren’t buying policies to do you a
favor; they buy them as an investment.
When they buy a policy, they pay you up front and
take over payment of the premiums. The amount they pay will vary on
several factors, but usually averages to about 15% of your policy’s face
value. You benefit by getting more money out of your policy than if you
cancelled it or surrendered it.
Not every life insurance policy can be sold. In
general, the policy holder usually has to be age 55 or older with a life
expectancy between 2 and 12 years. The insurance policy has to be
transferable. It must be a universal life, variable universal life,
second-to-die or term life policy. Face amounts need to be at least
$100,000.
Several changes in your life could cause you to
consider a life settlement. Estate tax law revisions might mean your
heirs no longer face a hefty tax bill at your death. Perhaps your
universal life premiums have become too expensive for you, or maybe you
no longer have to worry about replacing your income.
In these situations, you have several options. You
can view your policy as an investment and keep it. You may be able to
lower your amount of coverage. You can let it lapse or surrender it for
its cash surrender value. But sometimes a life settlement is a better
solution.
For instance, because of estate tax law changes, a
lady in her late eighties no longer needed her universal life insurance
policy. She didn’t want to keep paying the premiums on her $600,000
policy. Instead of canceling the policy for the $518 cash surrender
value, she sold it instead for $80,000.
A recently-retired gentleman had a universal life
policy for $1,000,000. He became very ill and was having trouble paying
his medical bills. He passed on the $2,128 cash surrender value and
collected just over $100,000 through a life settlement instead. This
allowed him to pay for the medical care he desperately needed.
Keep in mind, though, that these people received
far less than if they held the policy until death.
For those considering a life settlement, there are
a few words of caution. Be aware that the commissions on life
settlements can be as high as 33%. These commissions are negotiated
between the advisor and the purchasing company, but are not always
disclosed to the client. If your state doesn’t require such
notification, make sure your advisor clearly states their cut.
Have your advisor show you offers from several
companies. You will want to know the gross offer, the commission and the
net amount you will receive. An advisor may recommend a company based on
which pays them more, not you.
Beware of advisors who approach you about life
settlements. In this case, it’s far better to be the pursuer than the
pursued.
There is a big difference between selling your
policy and buying someone else’s policy as an investment. I don’t
believe any small investor should buy someone else’s life insurance
policy as an investment. These were sold as ‘viaticals’ over the last
several years and many took the bait to their regret. Don’t buy a
viatical!
Life settlements aren’t for everyone. You need to
make sure your life insurance needs are properly met and you’ve
carefully considered all the pros and cons before making your decision.
But in some circumstances, a life settlement can be a wonderful way to
dip into the pot of gold sitting in your life insurance policy.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go to
www.guardingyourwealth.com. You can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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