By Lucas Siegel
Special to the Financial Independence Hub
The infamous retirement crisis that’s been talked about for years just became real, with inflation and interest rates reaching record highs in the past few months. Consumer prices skyrocketed by 9.1% as of June 2022, the largest increase we’ve seen in 40 years. Couple that with a growing senior population living off a fixed income, many of which retired early during the pandemic, and you have yourself a massive problem.
Most senior Americans are unaware that their life insurance policy could be one of their most valuable liquid assets. Contrary to popular belief, life insurance isn’t just a way to care for loved ones after you die through the death benefit. In fact, permanent life insurance policies can also be used to access funds for retirement planning and healthcare when you need it most. Life settlements are legal throughout the US and regulated in all except six states, as well as the provinces of Quebec and Saskatchewan in Canada.
Regardless of age or financial standing, understanding the true value of your assets is essential to living out the retirement you deserve. Check out the following four ways you can use your life insurance policy to help fund retirement:
1.) Sell your life insurance policy through a life settlement
For millions of Americans who own a life insurance policy, selling it through a life settlement can be a great way to access cash when it’s most needed. A life settlement involves selling a life insurance policy for lump-sum cash payment that is more than the cash surrender value, but less than the death benefit. Despite decades of industry innovation and growth, some 200 billion dollars[US$] in life insurance is lapsed each year that could have been sold as a life settlement.
While the life settlement process once took two to four months, AI technology has expedited the process, making it easier than ever the get a life settlement valuation. Policyholders can now use a free life settlement calculator to instantly see how much their policy is worth based on a few simple questions. Just as you track the value of your house on Zillow or your car on Autotrader, understanding the value of your life insurance policy is critical to make the best financial decisions for you and your family.
2.) Obtain the cash value from a permanent policy
When you pay your premium on a permanent life policy, only a portion goes toward covering the cost of your life insurance. The remainder of these payments goes into an investment account where cash value can grow on a tax-deferred basis. As you age, you’ll also eventually be able to tap into the interest earnings from this investment account to help keep your policy active, thus bringing down your out of pocket premium payments. Essentially, the money in this account can be treated as emergency savings with tax advantages.
3.) Borrow from your policy through a loan
Americans with whole life insurance that have accrued enough cash value to cover the debt can also use their policy as collateral through a whole life loan program. One major benefit is the interest rate will be much lower than what you’d see with credit card debt or an unsecured personal loan. This allows the policyholder to get a one-time, tax-free distribution that can be paid off with interest in life, or be withdrawn from your life insurance policy’s death benefit. Retirees might be able to go through their insurance carrier if whole life loans are offered, or utilize a third-party whole life loan program instead.
This is a great alternative for seniors considering canceling their whole life insurance policy. While forgoing your policy will get rid of premiums, it will also get rid of your coverage. Whole life loan programs are a great way to avoid paying policy premiums without losing the death benefit.
4.) Obtain the cash surrender value of a policy
If you’re nearing retirement and can’t afford your policy premiums, you can choose to surrender a permanent policy, which immediately ends your coverage. Individuals who surrender their policy will receive a check that includes the cash surrender value of the policy minus the surrender fees. Cash-surrender value is the amount of money a policyholder receives by surrendering their policy to the insurance company, typically equivalent to the current cash value of the policy minus loans, interest, and surrender fees.
While surrendering your policy is an option, a life settlement will yield a significantly higher amount. Policyholders will receive one “take it or leave it” offer from their insurance companies if they choose to surrender, and only get a small return.
Your life insurance isn’t just a safety net, it’s a financial asset
With the US senior population growing rapidly and expected to account for 20% of the population by 2050, the retirement crisis will only continue to unravel if adults can’t access sufficient retirement funding. Life settlements are a solution that more and more seniors are embracing, especially given recent economic volatility. By capitalizing on every penny tied up in your assets, you can experience the retirement you’ve always dreamed of, without breaking the bank.
Lucas Siegel is the CEO of Harbor Life Settlements & Harbor Life Brokerage, which offers the world’s most advanced life settlement auction site and the first-ever AI-powered life settlement calculator. Since its launch in early 2020, Harbor Life Online Exchange has listed hundreds of millions in life insurance policies for sale and has been pivotal in transforming the industry standard.