When you purchase life insurance, and then sell it, this settlement is known as life insurance settlement. Typically, life insurance settlements provide the policy holder a larger amount of cash than the cash value of that policy, but less than the death benefit of it. Policyholders who do not need life insurance might typically sell their policies to make use of that cash value. But the cash value is not the only benefit that might arise from a life insurance settlement.

Pros – Let us take a closer look at what life insurance settlements might offer to their policy holders:

• Policy lapsing – A life insurances typically lapses whenever you stop making payments. Selling the policy to one of the life settlement companies provides you with a quick cash amount and prevents the policy from being cancelled.
• Payment of premiums – Premium payments that are paid to the insurance company increase on a month basis. If it happens that you’re incapable of paying these costs, you might sell the life insurance and you will therefore not need to pay for those premiums.

Read life Insurance benefits for more on life insurance settlements.

Cons – There are drawbacks to selling a life insurance, which must be noted at this stage:

• No death benefit – Once a life insurance settlement has been agreed with a third party or with a life settlement company, there won’t be a death benefit given to your family. So by selling the insurance policy, in the unfortunate case of death, your family will be the ones who will need to settle your burial expenses themselves.
• Taxes on cash amounts – Whenever you sell your insurance policy, a tax might be charged on the cash value you received from selling it. So a large sum of money you believe you will receive will be subjected to tax making the whole amount much less than possibly anticipated.
• Life settlement unregulated in your state – Some states have no regulations on life insurance settlement. So if you have any disputes arising from selling your insurance policy, to a third party or to a life settlement company, the Insurance Department of your state might be unable to provide you with much help.

To determine whether you should sell your insurance, check “Cashing out Life Insurance: Life Insurance Settlements“.

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