Life Settlement Alternatives
There are several alternatives to selling your life insurance policy, the most common are:
Taking advantage of a policy’s accelerated death benefit.
Borrowing against a policy’s cash value.
Stopping payments to receive the policy’s surrender value.
Below, we’ve outlined those alternatives in more detail. It is important to note that while all of these are viable options, selling your life insurance policy will put more cash directly into your pocket.
Accelerated Death Benefit
An accelerated death benefit (ADB) refers to a rider that can be added to a policy that allows the policyholder to receive a portion of the death benefit while they are still alive. The ADB is sometimes referred to as a “living benefit.”
Borrow Against Life Insurance
If you still want your policy but need cash now, you can borrow against your life insurance policy. In this sort of transaction, you are borrowing a portion of your policy’s cash value with the expectation that you will pay it back.
As with all loans, you will be charged interest (which is often also taken from the policy’s cash value).
Any outstanding amount at the time of your passing is subtracted from the death benefit paid out by the policy.
When you surrender your life insurance, you stop paying your premiums and tell the insurance company that you no longer want or need life insurance coverage. After you surrender your policy, you’ll receive a portion of the cash surrender value of the policy.
As we mentioned above, the surrender value is almost always lower than the amount received in a life settlement.