When he was working, Ed purchased a permanent (whole life) insurance policy to protect his family. 30 years later, his kids are financially self-sufficient.
Recently, his health has declined, requiring significant medical treatment. Rather than burdening his children for money, he considers surrendering his policy to extract its cash value to pay for the medical bills.
There may be a better option.
A life settlement is the sale of a life insurance policy by the original insured owner to a third party (institutional) investor; on average, for 20-25% of the policy’s death benefit. The seller in a life settlement arrangement is expected to live more than two years; in a viatical settlement, the seller is terminally ill.
Caution: this is a complicated and inherently uncomfortable transaction, requiring special licensing both from brokers and buyers. There are also tax and multiple other considerations to the seller.
That said, experts suggest 88% of all universal life insurance policies never actualize into a death claim; translation, a tremendous transfer of economic value from consumers to life insurers’ bottom line.
Talk about uncomfortable!