close

Blogs > Elder Care and Special Needs Law Blog

Life Insurance: Is It Necessary to Keep as I Age or Can I Use It to Help Me Right Now?

Estate Planning Life Insurance Policy

Many seniors have paid for life insurance for decades only to realize they do not really need it as they get older.

I find that some clients continue to pay premiums for life insurance just because they always have and no one ever discussed the issue with them.

Introduction

In some cases, these individuals may have a greater present need for the funds to offset their cost of care. Accessing the value of those policies to fund retirement or health care expenses may be a more urgent need than the eventual payout upon passing away. In addition, clients can often get more than the surrender value if they are considering dropping a policy.

Clients may be relieved to learn that they have more value in their insurance “wallet” than previously understood. In some situations, clients may achieve a double win by accepting a cash settlement for policy and stopping the constant drain of high premiums. Even if the policy is a term policy with an imminent expiration date, there may still be value for a client to tap.

Examples

Consider the example of Maria, a 91-year-old woman, who owned a life insurance policy with a death benefit of $500,000 but negligible cash value. The annual premiums had risen to $60,000 per year — more than 10% of the death benefit. She brought the policy to a specialty insurance planning firm who auctioned the policy for her. Maria received an immediate gross payout of $185,000. This life settlement enabled her to stop the drain on her assets from the high premiums and fund more than two years of long term care.

In another case, a couple, Emily and Charles, had purchased a $4 million universal life policy for estate planning purposes. Upon review of the policy by an independent insurance planning firm, financial projections showed that the policy had not performed financially as well as expected. Emily, now a widow at age 79, was facing an increase in annual premium to keep the policy through her life expectancy from $44,000 to $106,000! The increase and some changes in her financial situation meant that the premiums were no longer affordable. Thanks to changes in tax law, she did not need the policy to pay estate taxes. Many people would simply surrender the policy for its $640,000 cash value. However, Emily decided to have the planning firm check the potential value of the policy at auction. She received an offer for $1,521,000 gross payout from the life settlement auction —  250% more than if she had surrendered the policy to the insurer. Escalating premium payments were eliminated and Emily was able to save the additional money she received.

Conclusion

Older adults who are feeling burdened by their insurance policies or are looking to take advantage of their locked up equity may have multiple options to consider, from policy loans to a lump sum settlement. It is important to seek a comprehensive policy review from a reputable, fully licensed independent insurance broker. From the legal side, we will be happy to work with you to ensure that your insurance policy decisions are consistent with your estate and long term care planning.

If you have any questions about this post or any other related matters, please feel free to email me at ssiegel@norris-law.com.