From the October 2009 Issue of Senior Market Advisor Magazine
Sometimes clients no longer need their life insurance policies or can no longer afford to continue them, especially as they recover from the economic crisis. When this occurs, clients are able to return the policy to the insurance company that issued it and receive cash for its current value–called a cash surrender value–assuming the policy has value. In the event that the clients are no longer able to afford their life insurance policy, and it does not have any cash value, they would simply let the policy lapse.
A new phenomenon
Those within the industry may have noticed a growing phenomenon in the life settlements business within the last five years. During this time, a relatively new market called secondary life insurance has grown, which enables life insurance policy owners who no longer need their policies to sell them on the open market, much like a homeowner would sell real estate. Life settlements can offer legitimate value to policyholders and investors, and enhance the value and liquidity of life insurance policies. If this process is completed properly, the life insurance policy would typically earn significantly more in the open market than it would if returned to the insurance company for a cash surrender value.
Keep the policy in effect
Financial advisors who currently have senior clients struggling to afford their life insurance premiums are encouraged to determine ways to continue the policy. Keeping the policy will continue to provide clients with the peace of mind that comes from knowing a tax-free death benefit will be available for their family and loved ones.