A life insurance policy is easily amongst one of the best ways of safeguarding the future of your family. It provides a cushion for your loved ones to fall back on, knowing that your family will be provided for even after you’re gone can give you a lot of peace of mind. The benefits of subscribing to a life insurance policy are plenty. But did you know that a life insurance policy can also be an investment?
While there are absolutely no doubts regarding the benefits and importance of a life insurance policy, certain situations can often make them pointless. Life insurance policies usually remain active only as long as you continue paying the premiums. But, what if you aren’t able to pay the premiums anymore? What if your children for whom you purchased the policy in the first place, are well settled and don’t really need it anymore? This is where Life Settlements come into the picture. If you ever require financial aid and a life insurance policy isn’t essential anymore, you could sell your life insurance policy to meet your requirements. But making the decision can be tricky. Here are some important pros and cons of life settlement investments to help you make your decision.
Pros of Life Settlement Investments
Life settlement investments can help you get out of some tight spots. Here are some of the benefits of life settlement investments.
Return of Investment in The Time of Need
Life Settlement Investments allow you to encash your life insurance policy when you need it the most. While a life settlement will not provide you with the same amount of return as the original policy, it will provide you with an amount that is large enough to help you out of a tight financial situation. Whether you need money in order to meet medical bills, even those that are not covered by health insurance, or meet other unexpected expenses, a life settlement can help you meet your financial requirements in time.
Avoid Lapse of Insurance Due To Inability To Pay The Installment
In order to ensure the continuation of your life insurance policy, you need to pay a periodic premium. The frequency of payment depends on the nature of your policy. However, if you are unable to pay the premium in time, your insurance policy can lapse. Some companies offer a grace period in which you can reinstate your policy, albeit by paying a small fine. Selling your insurance policy helps you meet your financial requirements through a policy that otherwise would have lapsed.
Reinvest in an Alternate Policy
Life settlement offers you the opportunity of getting out of your current life insurance policy and instead investing the money in another policy. If your requirements change and a life insurance policy is no longer of interest to you, you can enter into a life settlement agreement. This lets you get back a portion of your money which you can subsequently invest in another policy that is more suitable to your current requirements. This way, you can also expand your investment portfolio.
Low Risk, Stable and Accessible
Selling insurance policies is becoming more and more accessible in various states. As per the specialists at qcapital.com/learning/eligible-states/, life settlements are legal in as many as 43 states. Furthermore, unlike the stock market and cryptocurrency, life insurance returns are not subject to the state of the market, price fluctuations, and their value is not notional. This makes them stable and less risky as investments.
Cons of Life Settlement Investments
While life settlement investments do offer a large number of benefits, they come with their fair share of cons as well. Here are a few cons that you should keep in mind.
Return May Be Subject to Taxes
A significant portion of the money that you make through a life settlement would be used to pay off taxes. The IRS considers any earnings that are larger than the investment as taxable. Subsequently, only the return that is larger than the total amount that you have invested in the form of premiums will be taxable. However, if the insurance policy would have resulted in a payment being made to the beneficiaries in the event of death, the beneficiaries would not have to pay any form of tax on the return.
The Return Amount is Significantly Lower
If you enter into a life settlement, the amount that you receive is significantly lower in comparison to the actual value of the policy. Further, the amount is also taxable. Most settlements are roughly around 20 to 30 percent of the policy value.
Life Settlements are Less Regulated
The insurance industry is closely monitored and the providers have to adhere to a strict set of rules. However, the life settlements market isn’t as well regulated. The firm that you sell your policy to does not have to stick with it. Your policy could be sold multiple times to various owners. Poor regulation implies that the firms do not disclose the various disadvantages of life settlements and focus only on the positive aspects. This can cause customers and policy owners to make poorly informed decisions as advertisements focus only on the pros and skip the cons.
Ineligibility for Governmental Support
A life settlement agreement can significantly increase your salary which can, in turn, make you ineligible for various schemes and benefits that the government otherwise offers. Further, if you owe any debts, your creditors can use the money that you gain to pay off your debt. On the other hand, the return from a life insurance policy after your death cannot be targeted by your creditors.
Life settlements can help you liquidate your insurance if there is a need. Although you lose some money, it can help you get out of a sticky financial situation and take care of unexpected expenditure. While making the decision of liquidating your life insurance policy, you must carefully consider all the pros and cons of the same, before taking the plunge.