The thing about life insurance is that it’s better to have it and need it than to need it and not have it. And it seems that about one out of every two Americans understands that point.
A study by the Insurance Information Institute shows that about 54% of Americans had a life insurance policy in 2020.
There are many reasons why Americans don’t get life insurance. Many people don’t like to dispassionately contemplate their mortality and the consequences that it bears for their family until it’s too late.
And then there is misinformation. Over 50% of Americans overestimate the real cost of a life insurance policy. If you are in your 20s or 30s and very healthy, life insurance is relatively affordable.
Life insurance becomes more expensive to get as you age and find your health failing.
The average cost of life insurance increases by over 258% for a man between the ages of 25 to 50.
And life insurance may not be a comfort for the elderly Americans who do have it. Many that have it are struggling with financial woes. And they dread knowing that they will only worsen for their beneficiaries after their death.
About 50% of Americans are grappling with unmanageable medical debt. Collection agencies tried to retrieve $140 billion in unpaid medical bills in 2020 alone.
Many elderly people with life insurance policies are now selling them to life settlement companies to get a fraction of the policy’s value now.
It’s a bad idea because a quick payday will leave beneficiaries with nothing while only the life settlement company benefits.
What is a Life Settlement Company?
A life settlement company buys the life insurance policies of people 65 and older as if they were investments.
After you sell your life insurance policy, the company or investors you sold it to will automatically become the sole beneficiary of your policy.
The life settlement company will pay your premium until your death. Then its profits as the sole beneficiary of your policy. You will get a quick payout, but any and all beneficiaries that you designated will be removed from the policy.
Your spouse, children, or anyone else you would prefer as a beneficiary will get nothing.
Many elderly Americans struggling with debt find the quick payouts offered by life settlement companies enticing. But the life settlement company will only pay you an amount that is 10% to 50% of the value of your policy.
Also, the life settlement company will more likely buy your life insurance if you are over 65 and are in rapidly declining health with a terminal disease.
Life settlement, also known as death insurance, is big business. After all, there are a lot of Americans in debt that these companies can take advantage of.
Consider Your Options
You may be able to take out a loan against the value of your policy. Some life insurance companies allow you to convert the value of your coverage into a supplement income after a certain time.
You may be able to close out your policy and cash out on your own terms, depending on the contract.
If you have life insurance, confer with a representative to consider your options.
Any option is better than cashing out your policy for a fraction of its value so that a corporation of investors can become the sole beneficiary.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.