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Jill Boynton does a great job here explaining why people may sell life insurance policies and obtain cash from that sell for other planning or personal objectives. Their are plenty of mixed reviews to this strategy of “discounting” in the Life Insurance world and I personally believe it really depends on the circumstance and why the policy was sold in the first place. Check out snippets from the article below and click the link to read the full version…
When times are tough people often look to the cash value in their life insurance policies as a source of cash. In addition to borrowing the cash value, one strategy that is sometimes recommended is to sell your life insurance policy to a third party. You would get more than the cash value but not as much as the death benefit. Although this might seem like a good way to raise cash, in general this is a strategy that financial planners don’t recommend.
Selling your life insurance to a third party is called a “life settlement.” There are several things to be aware of before jumping into such an arrangement.
Investors who buy life settlements are really only interested in policies for individuals over age 65 and in poor health, and this group is particularly vulnerable to aggressive sales tactics.
As I said above, an alternative to selling your policy is to take a loan on the cash value. If you don’t need the cash value but are having trouble keeping up with the premiums, ask your adult children, if they are the policy beneficiaries, to pay the premiums.