More than $100 billion down the drain every 365 days.
No, it's not government waste or corporate greed.
It is approximately the amount of money American seniors give away each year in the form of lapsed life insurance policies, according to the Life Insurance Settlement Association.
Sometimes the life insurance policy lapse is an accident. Other times, it is nothing more than an oversight. More often than not, though, the money goes to waste because the policy-holders don't know that they are sitting on the opportunity of a lifetime.
Most of the time, the insurance policies are allowed to lapse because the people who own them don't know that unneeded or pricey policies may be sold through transactions known as life settlements.
What is a life settlement?
Life insurance is becoming increasingly popular in the United States, according to LIMRA, an organization that studies the life insurance industry. LIMRA's most recent Trends in Life Insurance Ownership study revealed that 5 million more households in the U.S. have life insurance than just seven years ago.
That means more families are planning for their futures--and more families may someday have the opportunity to benefit from life settlements.
A life settlement occurs when you sell your life insurance policy to a third party for an amount that is more than the policy's cash value but less than the death benefit.
You get cash, the person who buys the policy assumes all of the future premium payments and receives the death benefit at a later date.
In other words, you can essentially use the death benefit associated with your life insurance policy while you are alive. That's why some people consider life settlements to be the opportunity of a lifetime.
When life settlements make sense
Investing in life settlements isn't for everyone--but they almost always make sense for the Americans who let $100 billion in life insurance policies lapse each year.
Getting something out of your life insurance policy is always better than getting nothing, especially if you find yourself in one of the following situations:
- you can no longer afford to pay the monthly premium
- you no longer have the need to replace lost income if you or a loved one passes away
- there is no longer a need to pay estate taxes
- you find yourself needing to pay for healthcare or long-term care expenses
- you have a term policy and it is nearing the end of its coverage period
- you need the funds to enjoy a high quality of life during retirement.
In these instances, investing in life settlements almost always make sense.
Explore your options
Of course, even if you meet one or more of the criteria listed above, you still might want to explore other options--and there are plenty of other options, including:
- keeping the policy in force through a loan or using the cash surrender value to pay the monthly premiums
- seeking an accelerated death benefit, if such an option is available
- assigning the policy as a gift or contribution to a charitable organization
- converting a term policy to permanent insurance
- reducing the death benefit to a lower face value, which in turn reduces the monthly premiums
- letting the policy lapse, which is almost never a good option--especially when you might be able to secure a life settlement.
Which option is right for you and your family depends a great deal on your personal, professional, family and financial situation.
To help you determine what move makes the most sense for you, we're happy to discuss. But whatever you do, don't join the ranks of Americans who leave $100 billion unused each and every year.