Yet some people are still paying premiums when they start collecting Social Security, which may be financial overkill.
Seniors 65 and older with life insurance have several options:
- Continue paying. Death benefits don’t usually have to be reported on federal tax returns and can be used to pay state estate taxes.
n Surrender the policy for its cash value, if any.
- Let the policy lapse.
- Sell the policy in what is called a life settlement.
Through an intermediary, certain whole life policies can be sold to investors, such as hedge funds, said Rob Gatti, CEO of Life Settlement Leads, a company that evaluates policies on behalf of buyers.
“All seniors during these tough economic times should consider a life settlement,” Gatti said.
He noted that payouts usually range from 5% to 30% of the death benefit, plus any cash value, depending on the insured’s age, medical condition and type of policy, as well as other factors.
Traditionally, the market for life settlements has been for policies of $1 million or more.
This summer, Gatti’s company will begin accepting inquiries from people with policies as small as $50,000.
. Peter Traphagen Jr., a certified public accountant in Oradell, N.J., said that, before accepting an offer, you should double check a life settlement’s statistical assumptions.
“You should run your own calculations,” he said.
Unfortunately, he noted, having your own experts evaluate a life settlement for a $50,000 policy would prove costly given what you’re likely to get.
Of course, if you’re fortunate enough to be a healthy senior, it still might be worth it even if you have a modest policy.
