The Facts About Insurance Cash Settlement?

Answer 1

Insurance cash settlements occur when a policy holder elects to sell their policy for a cash settlement to another company. The settlement company will then pay the policy holder an amount that exceeds the surrender policy. Because this has turned into big business by some companies and provides a way out from under a burdensome contract, a tidy secondary market has been created for the purposes of life insurance cash settlements.

People often find themselves paying on a life insurance policy that they no longer want or need. They may have taken out the policy as an insurance against their income and no longer work at that job or have since gone on to procure a better life insurance deal. Previously, the individual in this circumstance had two choices. Either they could let the policy lapse by not paying on it, or they could willingly surrender the policy for the cash value.

A life insurance cash settlement is preferable to both of those options. The policy holder can actually walk away from the insurance policy and put some extra cash in their pocket at the same time. The settlement companies will pay the policy holder more than the amount they could have received upon surrendering the policy back to the insurance company.

People wishing to find a settlement company should be cautious moving forward, for obvious reasons. Find a company with a good reputation that is willing to put the policy in escrow until the sale is finalized and you have your money. The timing may vary from company to company, but it shouldn’t take much longer than thirty days to put a sale through.

It is also advisable to find a company that has a grace period between the time of sale and the point of no return. Most of the reputable companies will allow the policy holder an extra 15 days to decide if they want to back out of the deal. This is valuable, as you never know what might come up at the last minute.

Cash settlements are tax free up to the amount the policy holder has paid in premiums, treated as any other income up to the point of the surrender value, and then treated as capital gains beyond that point.