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Life Insurance Settlements
Life Insurance Settlements can be an option that can help pay for your possible housing needs after retirement. A number of people are feeling very scared about the current economic situation. Many experts will spin the current situation, but many people feel that we are in a recession.
Times are bad and getting worse and it looks like we won’t be getting out of this mess anytime soon. Foreclosures have continued to break records. Banks are unloading homes for half as much as they were worth just a few years ago. Gasoline prices are high and unemployment is going up. Inflation has tripled and the stocks are in a bear market. Loans are hard to come by and interest rates are going up. Consumer credit is drying up and bank and loan institutions are going under.
The bad news is everywhere and many people know someone who is having to make some hard choices when it comes to money.
While the experts are debating on how long the recovery may take, many seniors who want or need to move into independent living or assisted living are having to find ways to pay for it. Many have started to look beyond traditional sources of funding for other alternatives.
In the past, seniors have typically paid for the move into assisted living or independent living by supplementing their income from selling their homes, savings or investments, or both. With the home prices down, selling now could mean a major loss, even if they could find a buyer (right now selling a home can take up to a year or more). With stock prices down, selling an investment now could also result in major losses.
This is terrible news for people who are trying to ride out the bad times and regain that value later. Waiting is not always a possibility when you need assistance with activities of daily living now, not years from now.
Reverse mortgages have become common. This option only works for a homeowner who receives care in their home for the remainder of their life. If they have to move into assisted living or independent living at a later point in time, they may be faced with dire problems, including the requirement to pay back their reverse mortgage within one year after moving.
With the common options off the list for the immediate and and most likely for the next few years, what does someone do if they have to move into assisted living or independent living with now?
Fortunately, for many seniors there is another option. Most seniors when they were younger purchased life insurance policies when their situations in life changed (had children, income increased, lifestyle increased, they owned their own business, etc). Once they retired, their life insurance needs most likely have changed and they are still paying for life insurance that they no longer need.
Instead of canceling the insurance just to save money, these “surplus” policies can be used to fund the assisted living or independent living care that could be needed now, thus preserving most of their primary assets as part of the family estate, or until it is a better time to sell.
This option is called a Life Settlement. For many people, it has become an important financial tool.
So what is a Life Settlement?
A Life Settlement is simply this: a policyholder sells his or her life insurance policy to an institutional investor. Usually, institutional investors pay more money for policies than their cash “surrender” values. Since most life insurance values are guaranteed and disconnected from the economy, there is no fluctuation. Most types of life insurance contract can be used for a Life Settlement.
Life Settlements are not complicated and many transactions can be completed in 30 to 60 days. A Life Settlement is another way for seniors to tap into an existing asset to generate liquidity to cover their needs now. The owner of the life insurance policy gets a lump sum payment. Since it is not a loan, the funds are unrestricted and require no repayment. The gains of a Life Settlement can be tax deductible if used to pay for assisted living or skilled nursing care.