Each year, families across the United States are faced with highly stressful financial decisions in the wake of chronic illness or a sudden tragic event. In an effort to find funds needed to support a financial distress situation, many families are making decision to cash in, early, on life insurance policies. With the risk for capital gains tax, there are some financial complications that may arise should you opt to cash in, early, on a life insurance policy.
While most insurance companies do not tell you, you do have an option to sell or transfer your life insurance policy to an investor. Known as life-settlement brokers, an independent insurance consultant can usually assist you in finding investors that specialize in the cash option of your life insurance policy. While you can expect to receive a much lower settlement amount from the life insurance, it does provide for an immediate tap into your life insurance money without the issue of additional premiums or paying taxes on gains.
The concept behind the financial transaction, involves the agreement of the investor to continue paying your life insurance premiums, accepting the term of the life insurance policy at the time of your death. This is the ‘repayment’ you provide to the life-settlement broker in exchange for your immediate access to cash associated with your life insurance policy. In fact, these investors even turn and make a profit by creating pools whereby they recruit investors to pay the premium on your behalf.
As the aging population continues to rise in numbers, we can expect there will be many life insurance policies that will be ‘cashed-out’ due to the financial distress and the most immediate need for money. While your life insurance company may not tell you about your options for cashing out on the life insurance, a good financial advisor will. If you are facing financial distress, and you have a solid life insurance policy that you would like to ‘cash-out’ before your death, ask a financial advisor to locate a handful of quality life-settlement brokers. With the proper financial transactions in place, you can obtain access to a significant amount of cash within a relatively short period of time.
It is important to remember, however, that you may be uninsured in terms of life insurance at the time of your death and you should, therefore, make the necessary financial arrangements for your family through other forms of investments. An option for term life insurance may even be considered for specific periods of time to account for the remainder of your life span.