subject: Alternatives to Life Settlements [print this page] Alternatives to Life Settlements Alternatives to Life Settlements
A life insurance policy is a financial asset. That being said, the specific language of the policy goes a long way to determining whether it is an illiquid one or a version that can have some tangible, usable immediate benefit. There are no real alternatives to life settlements if the policy is not liquid. If the language invites flexibility, the opposite is true. Let's look at some examples.
Term life insurance carries no cash value, but many other policies do. The cash value is an amount that is charged in the premium in excess of the cost of keeping the insurance in force. This excess amount slowly builds up and gains in value based on different investment approaches. The vast majority of policies with cash values in them have a loan mechanism. You can borrow a certain amount against the cash value. The amount is usually paid back upon your passing.
Let's take the same policy described above. You've build cash up in it, but can't afford to pay the premiums any longer. You can surrender the policy to the insurance company. The company will pay you any cash value minus charges detailed in the policy. This puts cash in your hand, but nowhere near as much as you'll receive with a life settlement.
You always have the option of letting a life insurance policy lapse. This relieves you of the burden of paying the premiums, but you get none of the benefit you've been paying the premiums all this time. Selling the policy makes much more sense, which is why life settlements are so popular.
Are there alternatives to the life settlement solution? Yes. Are they good alternatives? Every situation is different, but only the loan option makes sense in most situations.
