3 Reasons to Should Avoid Life Settlement Policies

Most Americans don’t take life insurance for granted because almost one out of every two Americans don’t have it.

According to the Insurance Information Institute, only about 54% of Americans had life insurance coverage in 2020.

About 50% of Americans overestimate the actual cost of life insurance. However, the cost of a life insurance premium increases the longer you wait to get it. For example, the average life insurance premium increases by 258% for a man between the ages of 25 to 50.

Life insurance is relatively affordable if you acquire it while young and healthy.

Many elderly Americans can’t get life insurance in their old age. And many that do have it find themselves struggling with financial woes that they know will only worsen for their beneficiaries after their passing.

Over 50% of Americans are struggling with medical debt. Collection agencies attempted to retrieve over $140 billion in unpaid medical debts from Americans in 2020 alone.

So, many elderly people with life insurance are selling it to life settlement companies to get a fraction of the coverage value now.

To better explain why this is a bad idea, we need to explain the concept of life settlement policies better.

What is a life settlement company?

A life settlement company profits by buying the life insurance coverage of people 65 and older. Once you sell your life insurance coverage, the company, broker, or investor you sold it to will automatically become the sole beneficiary.

The life settlement company will then pay the premium until death and profit as the sole beneficiary.

So, why is this a bad thing? Here are a few reasons.

No preferred beneficiaries

After your death, the life settlement company becomes the sole beneficiary of your coverage.

That means that your spouse, children, or anyone else who could have been named as a beneficiary will get nothing after your passing.

Small payout

If you do sell your life insurance coverage, you will get an immediate payout. But it won’t be a lot.

Depending on your negotiation skills, you will be lucky to get anywhere between 10% to 50% of the face value of your life insurance policy.

While that may not sound like a lot, you must remember that life settlement companies profit by buying and becoming the sole beneficiaries of hundreds or thousands of life insurance policies.

You can only sell your policy if you are old and near-death

Life settlement companies usually only buy life insurance policies that benefit them and their bottom lines.

To sell your life insurance policy, you usually must be over the age of 65 and be in deteriorating or terminal health.

Otherwise, life settlement companies can’t profit by buying the policies of a healthy 65-year-old.

They may end up paying your premium for a decade or two, which isn’t profitable for them.

Test Your Financial Advisor’s Loyalty with These Simple Questions

You have a financial advisor in order to make certain you have budgeted your money correctly, have planned for future financial needs, and, in some cases, to turn some of

Sell Puts the Smart Way: Get Out Before Expiration Nears

Selling put options can be a great way to help increase the value of your portfolio without taking on too much risk. At its core, a put sale allows investors

refinancing

4 Pros and 1 Con of Refinancing Your Home

Two years ago the 30-year fixed mortgage rate was 4.6%. Today it is 2.9%. If your mortgage is in the high threes, you should consider refinancing. Refinancing would lower your

Easy Finance Tip: How to Calculate Your Net Worth

To calculate your net worth, just subtract your liabilities (what you owe) from your assets (what you own). While the equation is simple, it's important to get a snapshot of

Just a Few Bad Market Years Can Slam Your Retirement: How to Cut Your Risk

I believe one very underappreciated risk for investors preparing for retirement is the concept of “sequence of returns.” Sequence of return risk is the danger that the timing of withdrawals

Tai Chi Can Benefits for Those with Chronic Diseases

The Chinese martial art of tai chi can be beneficial to people suffering with chronic illnesses, according to research in the British Journal of Sports Medicine (2015), conducted by Dr.

Two Measures of Options Volatility That Matter

Most people often have a notion of what volatility means. They understand, at least conceptually, that it has to do with data of situations that vary over time. Weather is

3 Financial Habits to Adopt Before You Retire

Nobody wants to work until the day they die. We all want to get to a point where we can simply sit down, relax, and enjoy life.  Consider adopting these

11 Ways Eating Limes Can Protect Your Eyes, Heart, Joints and More

Most of us hear lime and think Corona beer or ceviche. Surprisingly, this little bright green fruit has many excellent benefits for your health and wellness. Limes are often overlooked

Why You Should Take Social Security Early and Invest

Social Security is a government program, so it is unnecessarily complicated. Working or retired? Married or divorced or both? Disabled? Private or public employer? All these factors affect your Social

5 Benefits of Opening a Health Savings Account

The tax advantages of a healthcare savings account are like those of a traditional IRA, a Roth IRA, or a 529 college savings plan. The account can be used like

A Simple, Easy Way to Lower Your Blood Pressure

According to the American Diabetes Association, one in three Americans have high blood pressure, and this condition may lead to other chronic diseases like heart disease and diabetes. There are