How to get More than the Cash Surrender Value!
Over the years, it’s possible to build up a substantial investment in a life insurance policy. Many people find themselves watching the amount they’ve paid into the policy increasing every year–but as it increases, they aren’t able to take advantage of the policy. Typically, a life insurance policy is intended to benefit the dependents of the policyholder, rather than the policyholder themselves. In some cases, however, that money starts to look tempting, especially as the senior year’s approach and the policy holder experiences some of the unexpected expenses that come along with aging. There’s just one problem: the cash surrender value of the policy is usually substantially less than what’s been paid into the policy over the years, and it’s certainly less than the face value of the policy.
What is the Cash Surrender Value?
If you’re wondering, “What is cash surrender value?” you’re not alone! The cash surrender value of life insurance (CSV) is the amount you’ll receive if you decide to cash in the policy prior to your death. This is a significantly lower sum than you would receive if you were to die and the value of the policy was paid out to your dependents.
What If I want More than the Cash Surrender Value of the Life Insurance Policy?
If you’re in the position of deciding whether or not to sell your life insurance policy, but want more than the cash surrender value, there are options! Fortunately, you don’t have to get stuck on the cash surrender value of life insurance when you’re deciding whether or not you want to trade your policy for cash now. You can choose a life insurance settlement, which is a standard option available to anyone with a life insurance policy, or a viatical settlement, which is available to those with a terminal illness and less than two years to live. With either option, you’re able to obtain less than the face value of the policy, but more than you’re able to obtain by opting for cash surrender.
What are Insurance Settlements?
In a life settlement, the policy-holder transfers ownership of the policy to a third party investor. That investor is able to change the beneficiary of the policy, which means that they are the ones to benefit from your death. In a life settlement, the amount you receive will be less than the face value of the policy, but more than you would receive from cashing out your policy. How much you receive will depend on a variety of factors, including:
- The face value of your policy
- Your age
- Your current health status, including the types of health problems you’re currently experiencing
While your cash value will vary depending on these factors, most people find that an insurance settlement is the better value for their policy, especially if they’ve been forced to sell the policy due to expenses beyond their control. The cash value of your life insurance policy is likely significantly less than the amount you can expect to receive as a result of a settlement–and that means that if you opt for the cash value alone, you’re missing out on a great opportunity to increase your available funds and make it easier for you to meet your financial goals.
Viatical settlements are similar to life settlements, but they take place when the insured individual has less than two years to live due to the diagnosis of a terminal illness. These settlements typically offer a much higher cash value than traditional settlement, primarily due to the faster return for the investor. Viatical settlements do not have an age limitation since terminal illnesses can strike at any age. Offers for this type of policy typically range from 30-80% of the face value of the insurance policy.
Why Opt for an insurance Settlement?
In most cases, you would opt for an insurance settlement when your financial needs or priorities have shifted substantially. Since it is a higher-value option than the life insurance cash surrender value, it’s often a better way to raise money than surrendering the policy to the insurance company. The cash surrender value of the policy typically also depends on how many years you’ve been paying into the policy–which can, in some cases, limit the funds that you’re able to access. The funds from a settlement can help you:
Pay living expenses that go above what was anticipated at this stage of your life.
Elderly individuals often find themselves facing unexpected living expenses after retirement, especially if they retired early and had found themselves living longer than initially anticipated. A settlement can substantially increase the available cash many seniors have on hand, especially if they’re able to invest the proceeds of the sale.
Deal with expensive medical costs.
As you age, you’ll experience increased health-related costs. While there are state programs in place that will help with many of those medical costs, there are also expenses that simply aren’t covered by Medicare or Medicaid. This may include things like the cost of a nursing home or assisted living facility that doesn’t accept these policies. An insurance settlement can transform many individuals’ ability to pay those costs.
Handle unanticipated expenses.
Your car, which you expected to last through the rest of your life, has been totaled. Your home has been the victim of a natural disaster, leaving you with costly repairs. While a settlement should not be used as an emergency fund–after all, it’s one you can only dip into once!–it’s also, a good way to improve your financial standing and take care of expensive, unanticipated emergencies.
Enjoy the last years of your life.
If you’ve been diagnosed with a terminal illness and have only two years or less left to live, the viatical option will quickly start to make sense. With a viatical, you’re able to take advantage of your life insurance policy and make use of the money that you’ve so carefully invested in life insurance over the years. This might include taking the opportunity to travel, spending more time with loved ones instead of having to worry about a source of income during these last years of your life, or simply making your last years more comfortable.
Things to Consider Before Opting for a Settlement
An insurance settlement is an excellent option for increasing your available funds and handling many difficult situations. It’s also, however, essential to consider several key factors before you choose this option.
What was your life insurance policy intended to cover?
Many people choose to invest in life insurance to help their families out in the event of their untimely death. This might include considerations like sending minor children to college, paying for a spouse who has been out of the workforce to further their education or have time to get a job, or other serious financial considerations. As you move into your senior years and your home life changes, however, these items may no longer be a consideration. Your spouse, for example, might have long since gone back to work and attained an income that will allow them to support themselves, and your children may now be independent adults who do not need your funds.
Do you have a plan in place to cover burial expenses?
Some life insurance policies are intended, not to provide for survivors, but to cover burial expenses. If you do opt for an insurance settlement, make sure that there are funds in place to cover those essential expenses so that you don’t leave that burden on your family. In some cases, setting aside a portion of the funds from your settlement may be enough to help provide peace of mind.
How will your estate pay for end-of-life expenses?
If you’re considering a viatical, you may be intending to cover many of your health-related costs with the money. If you’re planning to use the money for travel, living expenses, and other things, however, make sure that you’re carefully considering how you’ll pay for those last bills so that they aren’t left as a burden to your surviving relatives. Careful financial planning will help alleviate many of these concerns.
Cash Surrender or Settlement
Opting for a settlement is a great way to increase your available funds, especially when the primary reason for the policy is no longer a consideration. By carefully thinking through your decision and making financial plans that will suit your situation and your needs, you can put yourself in a better position to handle the funds wisely. If you need money now, there’s no reason to have it sitting in limbo, waiting for your death! Instead, enjoy the money while you’re alive and reap the benefits of your careful investments. Knowing your life insurance cash surrender value and how you can extend it as a result of a settlement will allow you to make your money work for you.