If you can no longer afford the premium, don’t let the policy lapse. You must get your life insurance policy valued before you just throw it away. Seniors literally throw away Billions of dollars a year.. without ever knowing. Instead, explore your options before you make a decision you may regret. Comparing a Life Insurance Loan to a Viatical Settlement will help you make the smart decision for you and your family.
Life Insurance Loans
When you own a life insurance policy, you can borrow against the cash surrender value and use the money any way you see fit. In general, the longer you own the life insurance policy, the larger amount of money you will be able to borrow. A loan or life insurance advance is a good way for some individuals to get the money they need to pay for medical care or use in other ways while they are still alive.
You can elect to repay the life insurance loan and the accrued interest, or, upon your demise, the balance of the loan plus interest will be deducted from the death benefit. Your beneficiary will receive any remaining balance. If you choose to take a life insurance advance and not pay it back during your lifetime, you should make sure you have made alternate plans for your funeral expenses.
In most states in the United States, laws are in place that allow terminally ill individuals to sell their life insurance policy to a third party viatical settlement company. The National Association of Insurance Commissioners 2009 Viatical Settlements Model Act serves as a guideline for the individual legislation and laws in each state that govern viatical settlements.
An individual with a life expectancy of two years or left can entertain offers from one or more viatical settlement companies and usually receive a greater cash settlement than if he or she took out a life insurance advance. In return for a cash payment, the settlement company continues to make the premium payments and becomes the beneficiary of the policy upon the death of the insured.
What is your best choice?
When comparing a life insurance loan to a viatical settlement, there are many similarities and a few differences. You do not incur any federal tax liability with either option and both methods provide the insured and his or her family with funds that can be used to help provide care.
When you opt for a loan, you can always pay it back. You can also choose to borrow only a portion of the surrender value. You are in control of the amount of how much money will be left to pay out to your beneficiary. With the settlement, you may receive a greater amount of cash, but you no longer own the policy. Once the deal is complete, you can not change your mind.