Retirement Planning with a Life Settlement

Clock March 10, 2022

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You’ve worked and planned throughout your adult life to ensure a comfortable, enjoyable retirement for yourself and your family. Saving enough for retirement can be difficult in the best of times, even without accounting for things like the rising cost of living and increasing health care costs. Most of us find ourselves approaching retirement age wishing we had saved just a little more. The good news is that you do have options to generate new funds without additional investments. The sale of a life insurance policy through a life settlement can provide a quick payment, often for more than four times the policy’s cash surrender value, allowing you to cash in your life insurance policy while living.

How do I cash in my life insurance policy?

If you’ve determined that your life insurance policy is outdated, unnecessary, or too expensive to keep, you have options to cash in your life insurance policy before death. These options are often used by policyowners to fund retirement expenses but can be used toward any purpose you wish.

Two of the most effective options include surrendering your policy and a life settlement. In both cases, you will receive a lump sum payment and will no longer need to pay your monthly premiums. However, you will also likely be forfeiting any future death benefits associated with the policy.

You may also have the option to take out a loan against or withdraw money from your policy. Withdrawing from the policy could have tax implications and can lessen the policy’s death benefit. Additionally, any loans against your life insurance policy will need to be paid back and will also reduce the death benefit. Should your policy lapse with an outstanding loan, you could face some tax consequences as well.

Cash Surrender Value

The cash surrender value of a life insurance policy is the amount you will receive if you surrender your policy back to the insurance company before the death benefit has been paid. The cash surrender value typically equates to the face value of the policy minus any costs and fees. Factors like age of policy, type of policy, and market performance can influence the cash surrender value. Cash surrender values are often available with permanent life insurances, such as whole life or universal life. Term life policies, which only offer death benefits, do not often include cash surrender.

Life Settlement

A life settlement is the sale of your life insurance policy to a third-party buyer for a lump sum. This sale happens on the secondary market for life insurance. This may be news to you as many policy owners are not aware they may be able to sell their life insurance policy for cash. The resale of life insurance has been legal in the United States for over 100 years and is a highly regulated, secure process. A life insurance policy is your property, and it is your right to sell it if desired just as you would with a vehicle or house.

Life settlements differ from cash surrender value in that you are selling to a third-party, who then takes on responsibilities for future premium payments and will receive the death benefit. When a policy is surrendered back to the carrier for its cash surrender value, the policy is terminated. You will work with licensed professionals throughout this process and will have the ability to drive up sale price through bidding. But what’s the difference to the policyowner? On average, the typical life settlement cash payout is four times more than the policy’s cash surrender value.

There are some eligibility guidelines when it comes to life settlements, including policy value, your age, and your health. To learn more about life settlements, feel free to check out our Life Settlement Information Center.

Why is a life settlement helpful for retirement planning?

There are no restrictions on what your life settlement payout can be used towards. In other words, if you qualify for a life settlement, it is a great way to generate a large lump sum payment worth more than your life insurance policy’s cash value. A life settlement can provide flexibility as well as security in your retirement, offering you the ability to enjoy the proceeds of a life insurance policy while you’re still living.

Lighthouse Life is here to support you and answer any questions you may have related to life settlements. Give us a call today or get started using our free estimate generator.

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