Life settlements: Pros, Cons andeverything

Are you a life insurance policy owner who wants to sell his/her policy in exchange for a one-time cash settlement?

If yes, then you are in the right place. This article is going to give you all the information that you need to know about the process of selling a life insurance policy.

When a third party such as an institutional investor buys the life insurance policy from the policyholder for a lump sum amount, the process is called as life settlements.

This has become possible only because the life insurance policies are treated as assets or property just like the rest. This is the result of a monumental decision taken by the United States Supreme Court in the Grigsby vs. Russell case in 1911. The court recognized the right of the policy owner to assign his/her life insurance policy. The Justice of this case- Justice Oliver Wendell Holmes declared that a life insurance policy is similar to any other property. Hence, it can be transferred by its owner without any limitation.

The life settlement market grew in the 1980’s during the AIDS epidemic.

Due to lack of money, the terminally ill policyholders decided to liquidate their insurance policies as they no longer needed it.

In this way, the “Life settlements” industry bloomed and started gaining popularity.

A life settlement is just one of the ways in which a policyholder may cash in his/her policy. However, what exactly does cashing a life insurance policy mean?

Several policyholders face a lot of dilemma on when to cash in a life insurance policy. Here are a few things about cashing in life insurance policy.

Cashing in life insurance policy is a critical decision and must be taken with caution. There are three options available to a policy owner in this process: borrowing against the cash value, surrendering the policy, or withdrawing the cash value of the policy.

  • Borrowing against cash value: In an emergency, a policyholder may wish to borrow a portion of the policy’s cash value. This loan taken out of the cash value of the policy has consequences: interest on the loan and repayment without a stipulated amount of time.
  • Surrendering the policy: The policy owner may choose to surrender his/her policy at his will, and he/she has a less expensive alternative or may no longer need the policy. Surrendering the policy removes the death benefit; hence, this step must be chosen with caution.
  • Withdrawing from the policy’s cash value: This is an alternative option for borrowing money from the cash value of the insurance policy. Depending on the policy and its terms and conditions, policy withdrawals may have several effects on it.
  • A life settlement is one of the most widely popular options which involve a third-party institution buying the policy for one-time cash settlement.

Each of these options has their pros and cons, and a policyholder may choose any one out of these depending on his/her requirements.

Hope this article helps you to make wise decisions.

Jennifer Winget

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