Ways That You Can Adjust your Life Insurance Policy to Cover Expenses

It is important to remember that your life insurance policy is a financial asset. You can utilize that asset in many ways. It is even more valuable for seniors when it comes to financial planning in retirement. A policy is necessary to have when you have a family you need to protect, but after the age of 65, is a life insurance policy necessary? Naturally, financial needs change. 

54% of Americans have a life insurance policy, but the policy’s premiums increase by 4.5%-9% as they age. In conjunction with the rise of cost in healthcare, keeping life insurance coverage becomes debatable.

The option that will put more cash in your pocket and eliminate your policy

Considering living and transportation expenses, covering health expenses becomes the biggest concern for seniors as their health care costs triple by the time they reach 65. Recent reports suggest that the average person spends nearly $300k on health care costs in retirement.

Other expenses that seniors cannot eliminate include living expenses, which average out to nearly $10,000, including service. And although seniors spend less than those in their early years, transportation is just as important. Seniors are finding themselves unprepared for these expenses and need options to turn to; that is why they are utilizing their life insurance policies. 

There are several ways that you can use a life insurance policy to accommodate living and health concerns. The more seniors are educated about their options, the better prepared they can be, even if they still need coverage. 

Keep coverage and reduce your premium payment.

As health care costs increase with age, premium payments on life insurance policies also increase. For seniors who cannot compromise and need both coverage but have increasing health expenses, this is a pressing issue.

Sometimes life insurance companies will work with the policyholder to accommodate financial needs. One option that allows seniors to keep coverage and cut back on monthly premiums is to reduce the policy’s face value overall. This decreases the death benefit in favor of also lowering the monthly premium payments. 

Another option that allows seniors to keep coverage is using cash value to pay premiums on the policy. This stops the monthly payments on the policy altogether, but only until the cash value runs out. Unfortunately, that makes this solution temporary, and the cash value depletes the death benefit on the policy. 

Certain policies have the option to get a living benefit on the policy. This is for policies that include an Accelerated Death Benefit rider, which allows the insured the opportunity to accelerate a portion of the death benefit payment. This option is also limiting because it is designed specifically for those who have less than 12 months to live. Therefore this option is not for the majority of seniors.

Keep coverage and get a loan for your expenses.

If you need to keep coverage but need money to pay for a surprise expense, such as an unexpected trip to the hospital, or repairs to an old roof, getting a loan taken out on your policy is possible. 

Because life insurance is an asset, it can be used as leverage on a loan. You can take out a loan from the life insurance company on your policy. If the account value has accumulated over the years, sometimes the life insurance company will allow you to borrow against a portion of that amount. The amount borrowed is deducted before the death benefit until the loan is repaid. 

You can also use your policy to take a loan from a third-party. Third-party lenders typically require collateral, and in this case, they use your policy as sole collateral. Be aware, these types of loans vary greatly and are not offered in all states. 

The amounts on both of these options must be paid back, which is not ideal for someone with deteriorating health. It puts the policyholder in a position to accumulate more debt. These solutions are also temporary. 

Eliminate coverage 

If you no longer need the coverage of a life insurance policy, you have the choice to eliminate the policy altogether. A policyholder will always have the option to lapse the policy. It rids of the policy as they stop paying the premiums. The owner does not receive any benefits, however. It is the least desirable option for seniors. Millions of dollars go to waste on lapsed policies every year. 

 Similarly, you can also opt for a paid-up policy. It requires a significant amount of cash value in the policy. The life insurance company offers a reduced death benefit and waives future payments in this case. The catch? They get to keep the entire cash value of the policy. There are no benefits, and you do not get any money from the transaction. 

Another alternative is a premium waiver. This type of elimination or reduction requires specific qualifications. This is commonly referred to as the Disability Waiver of Premium, which is defined in the life insurance contract and must be verified. As it suggests, it requires the insured to have a disability of some sort; therefore, it is not for all seniors. 

The problem with many of these options presented by life insurance carriers is that they are not always in the policyholder’s best interest. They are focused on retaining the policy and making sure they gain a profit. Each type of carrier solution results in a smaller death benefit, a short-term solution, or an increase in the policyholder’s debt. 

Eliminate coverage and get a cash settlement

If you are going to eliminate your policy, you want it to be beneficial to you. There are ways that you can eliminate your life insurance policy and get cash out of it. It is ideal as opposed to letting paid premiums go unaccounted for.  

As many policyholders know, you can surrender your policy to the life insurance company for the surrender value. The surrender value is the cash value after administration, and surrender fees are paid. In this case, the policyholder receives less than what the policy is actually valued at. 

There is one better option, however, that allows insureds to receive the fair market value on the policy. A life settlement. Insurance carriers will not mention a life settlement because it does not benefit them. Life settlements are most appealing to policyholders because they provide more cash, stop premium payments, and eliminate the policy altogether. Because your life insurance policy is an asset, you can also sell it.

In a life settlement transaction, you get your policy appraised and then sell your policy to a third party for cash. A broker represents the policyholder in a life settlement and puts the policy on the secondary market for the highest bid possible. Insureds get the most money out of their policy with a brokered settlement because the value is increased through competition. The insured gets up to 10x the value of the life insurance policy in comparison to the surrender value.

Some people prefer to sell their policy directly to a provider. In this case, you get one offer without the comparison, and the provider’s best interest is in the carrier’s. Most people get more out of their policy by going through a broker because they have a fiduciary duty to their clients. A life settlement broker wants you to get the most money out of your policy. 

Everyone has different needs regarding their finances in the middle of retirement, but knowing what you can do with a burdensome life insurance policy is beneficial. If you are looking for solutions, rethinking your coverage and expenses is a great place to start. Make your life insurance policy work for your lifestyle. 

Rob HaynieFebruary 9, 2021

Rob Haynie

Mr. Haynie has been a major influence on the evolution of the life settlement industry during his almost twenty-seven year career of proactive involvement. Not only has he been directly involved in negotiating and settling several thousand contracts, he also presently serves on the board of directors of the Life Insurance Settlement Association (LISA) and is a charter member of the Association’s PPC committee, which is charged with the regulatory and legislative activities of the industry. Additionally, he has served on both the Customer Advisory Board (CAB) of ITM/TwentyFirst Services and the Advisory Board of the Insurance Studies Institute (ISI). He was named one of the top 10 most influential people in the life settlement industry worldwide. Mr. Haynie, an Alumnus of Florida State University, currently holds a Life Agent License with Viatical Settlement Broker Appointment for LIS and has spoken at almost every life settlement industry meeting or conference, published articles on the subject and has given many educational webinars as well.

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