Don’t Let your Insurance Expire Worthless

Most people have heard of life insurance, but for those that haven’t, it is a type of contract that will pay someone you know, love or trust aka "your beneficiary" a tax free lump sum of money when you pass away.

One of the most well-known types of life insurance policy is called “Term Insurance”. Term insurance is exactly what it sounds like. It offers coverage for a set amount of time, i.e the “term” which is usually 10 or 20 years. That means that if you are 25 years old and buy a 10 year term insurance policy and die before you are 35 the policy will pay out and your beneficiary will receive the death benefit you paid for.

But on the other hand if you survive the 10 year term and do not renew your coverage, your policy will no longer be in force and your beneficiary will not receive any death benefit.

Term insurance is a great form of coverage when we have excess liabilities such as a mortgage or a business loan and need to protect someone from having the burden of debt, term insurance works well for this purpose because we can get a large amount of coverage for a relatively low cost.

It’s very straight forward, die within the term and get paid, outlive the term and the insurance expires worthless. That’s just how it works, everybody can understand that; but one thing that not everyone is aware of, including most advisors, is that your policy doesn’t have to be worthless after you no longer need term insurance.

Most people assume that after their term is up, if they no longer need the insurance, their only option is to let it expire. But the truth is you actually have a few different options at your disposal. Some of the options include: Conversion and Life Settlement

Conversion
The first option is the conversion feature, although not always offered in every policy, a very common benefit attached to a term policy is the conversion option. This option allows a policy holder to convert all or a portion of their term insurance to a whole life insurance policy otherwise known as permanent insurance. This is a great way to keep coverage and maintain value for the money you paid into your insurance policy as opposed to letting it expire worthless.

We all have a need for permanent insurance, it can be used to cover final expenses such as burial and estate taxation, transferring wealth to a loved one or leaving a legacy behind. If nothing else we all should have at least enough to fund our own burials and not leave any of our loved ones with the bill.

Seeing how less than 20% of term policies ever payout the death claim, taking advantage of the conversion option is a great way to make sure that the money you paid into your policy doesn’t disappear if you never need to claim during the term. I mean it’s a good thing you didn’t use it, no-one wants to pass away sooner rather than later, but it does suck having to pay for something you never ended up using. Term insurance can be a great solution to protect your liabilities for a duration of time, but permanent insurance is the only type of insurance I can guarantee you will use. So that being said I am an advocate of using your conversion option.

Life Settlement

The second option is called a life settlement, this is a contract provision inside your life insurance policy stating that you may sell the policy to a third party. This option is not widely known and therefore it is seldom presented to you when you purchase an insurance policy. The way it works is that a third party, normally an investment fund, will become the new owner of the policy as well as the beneficiary, while you will remain the insured. As the new owner the third party will pick-up the tab and begin paying the premiums for the duration of the policy. Now you’re off the hook, you no longer have to pay for your premiums, you also no longer have any insurance, but you will be eligible for a payment when selling the policy.

Because the third party purchasing your policy is set to make a good return in the future they are willing to pay you for selling the ownership of your policy to them. This works for both term and permanent policies and can be a great way to extract value from a policy that you no longer need or cannot afford.

A life settlement is not the most straight forward of concepts and will take some research and due diligence to make sure it is a good idea for you.

For more information in regards to Life Settlements check out these resourceful sites:
Canadianlifesettlements.com
Lisa.org

In Conclusion

If you own a life insurance policy that you do not intend to keep forever please take the time to learn about all of your options before you forfeit your ability to extract value from the policy and end up letting it expire worthless and not receiving a payment you may be entitled too.

As always be sure to read all your contracts before you scratch em, and if you don’t know find someone who knows and ask em!

#Federaly