Life expectancy has gone up. Fifty years back a person could expect to live up to seventy or seventy-five years of age but now the expectancy is eighty to eighty five years. This is because of better living conditions and better medical facilities.
The mortality tables have changed but this has given rise to more problems. A senior citizen may have invested his money wisely and he wants to keep it for a rainy day. So he may not want to liquidate it as far as possible. But he needs money for his day-to-day life and he may not be regularly earning now. His standard of living and his requirements may have gone up and he wonders where to get the money from. There is a way out of this problem, which he may not know about. He can use his insurance policies to get money, to get life settlement. This Life Settlement or Senior Settlement as it is also called can be obtained if he sells his old life insurance policy.
He can sell his insurance policy to another person through the secondary market, which leaves the insured person with a lump of cash. But he will be losing his policy and he will not have insurance coverage any more. To qualify for life settlement he should have a policy, which is out of contestability and has a death benefit of at least $ 250,000. Other criteria are that the insured person should be 65 years or older, his life expectancy is between two and twelve years and the premium on the policy is less than 5% of the death benefit and cash surrender value will not be more than 30% of the death benefit.
If all these conditions are met, an average of 20% of the face value of the insurance will be given to the insured person as a life settlement. A commission will also have to be paid to the broker who handles the case. Cases vary from person to person but the whole point is that a senior citizen can get a lump sum of money by selling his old insurance policy.
There is yet another method of getting money in old age without breaking investments. Everyone has a hidden asset called insurability. This allows a person to get life insurance up to their net worth which everyone has minus what they owe. If a 75 year old person has a house worth $ 1,200,000 and a vacation home worth $ 500,000 and some stock and pension which is around $ 2,000,000 t0 $ 2,500,000, he has an insurability of $ 2,50,000 even if he has no life insurance.
Using the premium program, he will be able to obtain a loan to finance the premium of the policy. After the loan matures in about two to five years, he will have to decide what to do. He can pay the loan plus interest and assume full responsibility of the future premiums, or he can renew the loan for another period and assign more personal guarantee. Or he can sell the policy on the secondary market and get a life settlement.
If the person passes away during this period, the proceeds will cover the loan and the rest will go to the beneficiaries. Hence senior citizens can generate cash by using their life insurance policies and by using their insurability.
