Are you a senior who is struggling to enjoy your retirement years on a tight budget? If so, you are hardly alone. More importantly, you may have a hidden asset that can help. That life insurance policy you have been paying premiums on for years, even decades, may be more valuable to you than you realize. A Port St. Lucie elder law attorney at Kulas Law Group explains the hidden value in your life insurance policy.
How Can You Get the Most Out of Your Life Insurance Policy?
People often purchase a life insurance policy early on in life, before they have amassed much in the way of assets, as a way to ensure that their loved ones will be financially secure if something happens to them. If that describes you, then you have probably been paying premiums on that policy for decades without ever expecting to personally benefit from the policy. While that policy was undoubtedly necessary many years ago, it may not be needed now. Your children are likely adults now and are no longer dependent on you for their financial support. You, on the other hand, could use an infusion of cash to live a more comfortable life during your retirement years. That same life insurance policy may be able to provide that cash in the form of a “senior life settlement.”
How Does a Life Settlement Work?
A senior life settlement is not the same as cashing in your life insurance policy for the “cash value” of the policy. Instead, a senior life settlement allows you to sell an existing life insurance policy to a third party (a company other than the company from which you purchased the policy) for more than the policy’s cash surrender value, but less than the net death benefit. For example, imagine that you have a life insurance policy with a death benefit of $2 million and a current cash surrender value of $400,000. If you opted for a life settlement you would sell that policy to a company for an amount that is more than $400,000 but less than $2 million. The third party would then take over the premium payments on the policy and would receive the death benefit upon your death. Unlike cashing in a life insurance policy, with a senior life settlement, the policy remains in effect and you remain the insured.
How Much Is My Policy Worth?
There is no universal formula for determining what your policy is worth. Typically though, the settlement amount is determined based on the amount of your policy premiums and your life expectancy. The reality is that most companies offering life settlements will only consider purchasing a policy if the owner is at least 65 years or has been diagnosed with a terminal illness. In the example above, you might be offered anywhere from $500,000 – $1.5 million for your policy – more than you would receive for cashing it in ($400,000) but less than what the third party will receive upon your death ($2 million).
Should I Accept a Senior Life Settlement?
Always consult with your financial advisor and your estate planning attorney before deciding to move forward with a senior life settlement. It can be an excellent resource when in a financial emergency or it can provide a nice financial cushion during your retirement years. Before you accept a settlement, however, you should consider the following:
- Will you still need life insurance in the future? If your children are grown and your spouse is taken care of through other means, you probably no longer need life insurance. If, however you are still concerned about providing for someone and you don’t have other assets to leave behind, you may want to hold onto the policy you have.
- Will there be tax consequences if you accept a settlement? – if you receive a large lump sum settlement it will likely come with some significant tax consequences. One option to discuss with your accountant is a 1035 exchange. Like the name implies, it effectively allows you to exchange one asset for another similar one without paying capital gains taxes.
- Will accepting a settlement jeopardize eligibility for assistance programs? – If you are currently receiving state and/or federal assistance, such as SNAP or Medicaid, you could lose your eligibility for that assistance of you receive a large sum of money.
Contact a Port St. Lucie Elder Law Attorney
To learn more, please join us for an upcoming FREE seminar. If you have additional questions or concerns about how to benefit from your life insurance while you are still alive, or other elder law issues, please contact an experienced Port St. Lucie elder law attorney at Kulas Law Group by calling (772) 398-0720 to schedule a consultation.