Life is unexpectedly short, and those left by people who pass away find it hard to cope and move on - especially financially – when the family exhausts their savings for their dead loved one. To protect the finances of the family when one member passes on, a life insurance policy will ensure that everyone moves on financially without any difficulty. When a family member that owns life insurance passes, the family will receive compensation that will help them get on with their lives comfortably. Unfortunately, some policy owners take advantage of options like selling a life insurance policy for cash. Whatever their reason may be, they feel that selling their insurance is the answer to their troubles.
If a member of the family – not necessarily the policyholder – suffers from a severe health condition that requires hospitalization and medication but does not have enough financial resources to fund medical expenses, the policyholder may opt to sell their life insurance in exchange for cash that the family can use for medical treatment of a family member.
If there is more than one policyholder in the family, one of them might go for a life settlement. They may use the money for home improvements, retirement savings, etc. Over-insuring may not always be a good thing in certain families.
Premiums becoming too costly
Premiums of life insurance these days are becoming more onerous, making it hard for policyholders to keep up with the payments. Instead of paying for the insurance fully, they choose to cash it in instead. Other policyholders may experience financial issues that no longer enable them to continue paying for insurance premiums, such as loss of work, medical emergencies, and loan payments. A life settlement is when a policyholder sells their life insurance for money, instead of letting the insurance policy lapse. Policyholders cash in their policies so they can use the money for other things.
Not everyone needs life insurance, no matter how beneficial it can be to those left behind by policyholders. If a policyholder deems that they no longer need their insurance, they sell it to a settlement company for cash.
If a life insurance holder has a change of retirement plans, such as they want to retire to other countries or travel the world and do not have needy beneficiaries for their insurance, they sell it so they can fund their travels and resettlement for a more comfortable and convenient retirement.
One good thing about a life settlement is that it does not restrict the policyholder in spending the money cashed in from the life insurance. The policy owner can choose to spend the proceeds however they want. Settlement companies purchase in-force life insurance policies and pay for the outstanding premiums if any. These companies will then collect the proceeds of the life insurance if the original policy owner dies. The amount of the settlement is higher than if the owner cancels or surrenders the policy but less than the death benefit.