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Life Settlement Alternatives
Life settlements are not the only option for seniors who are looking for liquidity in an asset or have a life insurance policy they don't want. Some of the other options are:
- Policy Loan:
This is a loan against the cash value of a life insurance policy. Since the cash value is used as collateral, loan amounts can not typically exceed the amount of accrued cash value. A life insurance policy loan provides relatively easy access to money. If the insured dies with an outstanding loan, the death benefit is reduced. Sometimes interest and fees will apply to the loan principle amount. In addition, the loan amount is usually far less than can be accessed by a life settlement. Furthermore, life insurance policy loans are not normally available on term life products as these typically don't have cash value.
- Surrender Policy to Insurance Company:
Policy owners have the option of voluntarily surrendering a life insurance policy to the issuing life insurance company. In exchange, they are paid a cash surrender value. This is usually the amount of cash value that has accumulated in the policy minus any loans. In addition, some policies assess fees for surrendering a policy. While the cash surrender value does offer liquidity to policy owners, it typically is far less than if the policy was sold in a life settlement.
- Accelerated Death Benefit Rider:
Some life insurance policies include or have the option of adding a rider that will allow access to a portion of the death benefit if the insured becomes terminally ill. Not all insurance policies have an accelerated death benefit provision. Even though accelerated death benefits differ from policy to policy, the provision pays policy owners a percentage of the policy's face value. Once the insured dies, the remaining death benefit is paid to the beneficiary. Viatical settlements may offer more money prior to the insured's death than accelerated death benefits. Viatical settlements are a specific type of life settlement for insureds who are terminally ill.
- Premiums Assumed by Beneficiaries:
If a life insurance policy premium becomes too burdensome or the policy itself is no longer necessary, the policy owner may want to eliminate the ongoing expense of premiums. However, the beneficiaries or heirs may not want to lose the death benefit and can assume the premium payments. This does provide for the full death benefit eventually, but doesn't allow for the immediate access to money as with a life settlement.