Life settlement involves the sale of life insurance policies by the insured to a third party in exchange for cash payment. You may need a life settlement calculator but In this scenario, the cash payment is relatively higher as compared to the cash surrender value yet lower than the net death benefit. The buyer then agrees to pay all the future premium payments after which they will get the death benefit when the insured dies and the policy matures.
Although life settlement can earn the insured immediate cash, there are attractive alternatives to this financial plan. However, most seniors are oblivious of the alternative options for lapsing unwanted life insurance policies. In this article, we will consider 3 possible alternatives to a life settlement.
Premium Financing
Premium financing is a tool that can be used to pay for life insurance premiums where there are cash-slow issues. Assistance with premium payment is especially handy for individuals who prefer to take larger policies with the aim to settle the cost of yearly policy premiums.
The borrower can take a recourse or long term-limited loan, which they are required to make payment at a specified date. Getting premium financing from lenders exposes the assets of the borrower.
Additionally, insured individuals can get assistance with premium payment from their relatives. This is particularly a great option for the relatives who are beneficiaries under the policy. Furthermore, the insured can borrow funds from other equity sources like a pension plan, stock portfolio on margin, or 401(K).
Each of these alternative sources has its own pros and cons. Therefore, whatever your choice is, it’s important to carefully consider each alternative source so you can make an informed decision.
Life Insurance Rider Options
Life insurance rider options are a great alternative to life settlement since they allow policyholders to access funds quickly. This tool eliminates the significant downside of life insurance that includes complicated transactions, which render it difficult for policyholders to access funds.
Rider options are designed for terminally ill policyholders who have a life expectancy of less than 1 year (12 months) to 18 months. Although they are narrow in availability, rider options are a low-cost option for accessing funds quickly when compared to a life settlement. Accelerated death benefit rider usually varies from one policy to another, and they are limited to 30-60% of the policy’s face value.
Policyholders can also take advantage of the retained death benefit sale. This is a new hybrid transaction where the insured sells a portion of the death benefit and gets a lump-sum payment for it.
This is in agreement that the buyer of the death benefit will make payment for all future transactions. This option however comes with its limitations such as limited access to policy, tax implications, and lower upfront payment.
Third-Party Loan
Unknown to many people, third party lending solutions offer more flexible solutions and quick access to a significant part of the entire policy’s death benefit. Individuals who are qualified for the lending program are required to tap into a section of their life insurance policy value.
In most cases, there are no restrictions on how the advanced in used. The lender then takes the responsibility to pay the outstanding premium payments as well as out-of-pocket expenses.
Another advantage of most third-party loans is that they provide the borrower and the beneficiaries with a higher total amount than that given in life settlements.
This is the case with the Funds for Living and Giving program by Fifth Season Financial where proceeds from the policy are used to repay the advance. Additionally, the remaining funds pass on to beneficiaries. Better yet, the process of acquiring the funds is faster when compared to that of the life settlement process.
Conclusion
The above alternatives are available to policyholders who looking for easier ways to ensure lapsing of their unwanted life insurance policy. Before you make the final decision, be sure to find out which alternative option is fit for your needs. Also, make sure that you evaluate any tax implications and consult a tax and financial advisors to help you determine the best alternative to your life settlement.