Print Article for : Life Insurance Pros And Cons

Your Online Guide » Guide to Insurance » General Insurance Liability

[L315]Life Insurance Pros And Cons

by Rate, Rat

Term Life Insurance refers to those insurance policies thathave temporary life insurance protection. This means that you are ensuredsecurity only for a fixed period of time. Another factor that characterizesthis type of policy is that you have to pay low premium compared to other typesof life insurance. This is because it builds no cash value and you pay only forthe cost of insurance (C.O.I.). The C.O.I. is the amount of money the insurancecompany charges to keep your life insurance policy in force. And this dependsgreatly on your age and health at the time you apply for coverage. The C.O.I isusually determined at the time you apply and increases at each policyanniversary as per the Yearly Renewable Term policy. The C.O.I. increases dueto the fact that as you get older, it becomes more expensive to insure yourlife.

The C.O.I. remains same during the initial guaranteed periodbut increases sharply with time as per a Level Term policy. Term Insurance paysa fixed lump sum to your designated beneficiary incase of your death within theperiod covered by the policy. The policy protects your family by providingmoney which they can invest to replace your salary. This also includesresources to cover the immediate expenses incurred by your death.

Pros:

Term Insurance is best for young, growing families, whosefinancial needs are especially high but whose resources are often insufficientto cover those needs. The Term Insurance policies are quite affordable in thebeginning compared to other policies as it builds no cash value.

Cons:

Though the Term Insurance premiums are affordable initially,yet it increases with age with death risk becoming obvious as people get older.In some cases, the Term Insurance premiums may rise each year or after theinitial guarantee period of 5, 10, 15, 20, 25 or 30 years. In fact, it is seenthat over the age of 65, the cost of Term Insurance becomes quite expensive, andat times too exorbitant.

More information

Selling your life insurance is an option you might consider if you're in a difficult financial situation for which you don't see a close end. A terminal illness or old age could cause you to think twice about paying those hefty premiums at this stage of your life. Selling your life insurance carries with it complex implications and substantial risks, so it is important that you educate yourself regarding the big picture. If you're interested in selling your life insurance, this is a good starting point to obtain some basic information.

Basics: Vocabulary

If you've already done any research on selling your life insurance, chances are good that you've come across two main terms: viaticals and life settlements. Both refer to the selling of your life insurance to a third party. So what's the difference? "Viatical" is typically used to refer to the transaction involving a chronically or terminally ill insured, while a "life settlement" is a transaction involving a senior (generally over the age of 65) who is not terminally ill.

Even though you now know the difference, it does not mean that your state does. These terms might be used interchangeably, or your state might use one of them to refer to both transactions. For example, your state could use "Viatical Settlement" to refer to any type of transaction regarding selling your insurance. Be aware that this kind of ambiguity may exist in relation to the vocabulary used in the sale of your life insurance.

How it Works

The owner of the life insurance policy will sell it for a percentage of the death benefit a lump sum to a third party and, in exchange, receives an often substantial lump sum payment. The third party then becomes the new owner and/or beneficiary of the policy and pays all of the future premiums and eventually collects the death benefit when the insured passes away.

Those considering selling their life insurance may either directly approach a viatical company or settlement firm, or they may choose to work with a broker. The broker will act as an intermediary and present the information to several different companies/firms in an effort to find the highest price for the sale.

The settlement firms buy the insurance on behalf of investors. In this situation, the investors become the owners and beneficiaries, and the settlement firm pays the premium until the insured dies. The firm then collects the death benefit and either pays its investors a percentage of the annual return or repackages the policy for sale to another party.

Take comfort in know that the process of selling one's life insurance is typically very confidential. Most viatical companies and settlement firms understand the discretion necessary to make the process run smoothly and easily. However, a company may act disrespectfully and become borderline intrusive by trying to keep track of the insured's condition. For this reason, it is important to work with a respectful, experienced organization.

Who Considers Selling

Those with serious, life-threatening illnesses are most likely to consider selling their life insurance to provide cash for various expenses, such as mounting medical bills. For those who are not terminally ill, selling the life insurance might be a good idea for a number of reasons. If the owner's beneficiary has died or if the owner can't afford to keep paying the premiums, it would appear that they no longer have sufficient use for the life insurance. Seniors around retirement age may also consider selling their life insurance, even if they are free of debt, in order to receive a lump sum of money with which they may do whatever they please.

Keep in mind that different companies may have different eligibility requirements to be able to sell your life insurance policy.

Advantages to Selling Your Life Insurance

It might be easy to see some of these benefits, but others are a little less obvious.

You'll receive a lump sum cash payment right now. As mentioned above, this is especially useful to the terminally ill who have mounting medical bills.

You will receive more by selling your life insurance than you would if you simply surrendered it to the insurance company. It is possible for an insured person who is 65 or older or who is terminally ill to sell a policy with little or no cash value for a $100,000.00 or much more.

You won't have to pay any more insurance premiums. If your financial situation is becoming strained with no end in sight, eliminating premiums is a way to alleviate the burden.

You don't have to repay the money, like you do when you borrow against your insurance policy.

Even though your life insurance benefits won't be available once you die, you can still leave money to a certain person or organization – it will just come from the money that is leftover after using the funds from selling your policy. So, selling your life insurance does not mean that you're definitely robbing your beneficiaries of their gift.

In some cases, the money you receive is tax-free.

There are no regulations or restrictions on how you make use of the money you receive. You may spend as much of it or as little of it as you wish, however you please.

Risks of Selling Your Life Insurance

Understanding the risks associated with selling your life insurance will help you make an informed decision. Be sure to consult a financial advisor or tax attorney to make sure you understand the implications of the sale.

You might lose your eligibility for some public assistance benefits, especially those based on your income and assets (such as food stamps, welfare, Medicaid and some Social Security benefits).

There could be tax issues. Selling the policy will result in a tax bill if the settlement amount exceeds your cost basis.

With improved medical care, the ill person may live longer than expected.

You might face unhappy heirs. This might not be a problem for you, but it could lead to a long road of (possibly legal) complications and battles. Some settlement actually companies require the beneficiaries to also sign off on any sale, which could be good or bad, depending on whether or not you're dealing with a cooperative beneficiary.

Other Options

If you come to the conclusion that selling your life insurance policy is not for you, there are other options (though none that would provide you with such a large lump sum). An insurance agent should be able to help give you more information on some of these ideas.

Borrow against your insurance policy

Cash out the policy if it has surrender value

Look into accelerated benefits or living benefits

Borrow money (from family or friends perhaps) and use the life insurance policy as collateral

If you believe that selling your life insurance policy is the right decision for you, make sure you deal with a dependable, experienced broker or settlement company to ensure that you get the best service and results from your transaction.

Article Source : Pg. 12

About Author

Both Rate & David Springer are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Rate has sinced written about articles on various topics from Insurance, Family Concerns and Insurance. RateDetective.com.au provides free information, compares and term life insurance rates for consumer bank pr. Rate's top article generates over 3600 views. to your Favourites.

David Springer has sinced written about articles on various topics from Small Business, Insurance and Guide Guitar. David Springer is a consultant for Sovereign Funding Group. An experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments, business financing solutions including. David Springer's top article generates over 14800 views. to your Favourites.