Seniors May Be Losing a Fortune by Surrendering Life Insurance Policies

When doctors diagnosed David B. with ALS, an incurable disease that usually leads to death within three or four years, the future for his family and himself suddenly looked bleak. Unable to keep working, he saw the medical bills piling up, and there seemed to be no hope. “We prayed a lot and cried a lot,” he recalls. “We thought every avenue had been explored to keep our home and any semblance of our life.”

Then, a bit of positive news came their way. A notice of late payment reminded David that he held a term life insurance policy with a face value of $500,000—a policy he’d been paying into by bank draft for years. David called his accountant, who reached out to a licensed life settlement provider, a company that specializes in buying life insurance policies as investments. After careful analysis, the company found that David’s policy could be converted to a whole life policy and sold for a substantial amount of money. David was offered $300,000 for the policy, less than the face value but nearly eight times its surrender value.

“What we found is that insurance companies pay very little to nothing for a life insurance policy while someone is still alive,” David explains. “But there are very reputable businesses that will purchase a policy. We needed the money now, and we were made an incredibly fair offer that pulled my family from the brink. I believe everyone should be made aware that this is an option for them when they need money.”

Tragic as his medical condition may be, David  had made a decision that benefited him. He had held onto his term life policy, even though he’d forgotten all about it. According to Kevin Seddon, president of Sanus Settlements, the specialty business development firm that collaborates with life settlement providers to inform seniors and those with life-threatening illnesses that selling their policies is a very viable option, too many seniors let their policies lapse because they can no longer afford the premium payments or they just don’t feel they need them any longer. Most never realize that their policies may have great value to them now. Many life insurance policies have real cash value, even term life policies, and many are worth a lot more than the holders realize, Seddon says.

Kevin Seddon

Seddon, whose company is located in Oxford, Mississippi, a city regarded as one of the country’s best small market retirement communities, wants to help seniors—especially those with financial problems or life-threatening illnesses—make better decisions about their policies. “Our mission is to inform those with life insurance policies to not give up their policies because they no longer feel the policies are needed or they can’t afford the payments,” Seddon says. “The reason is simple: These policies can be worth up to eight times what the insurance company will pay—if they will pay anything.”

There are reputable licensed companies that specialize in buying and brokering life insurance policies. Many offer substantially larger payouts compared to insurance companies. The problem is, most seniors have no idea that these companies exist and don’t know what their options are.

More than $100 billion dollars in life insurance payouts are lost each year due to lapsed policies. That’s because more than 80 percent of senior adults simply stop paying their premiums to save money. “Only the insurance companies win in this scenario,” Seddon notes. “They receive the premiums over many years but do not have to pay if the policy holder lets the policy lapse.”

Some policy holders try to sell the policies back to the insurance companies, but, even then, the insurance company is not required to purchase the policy. Policy holders frequently get a much better deal from licensed settlement companies. “A licensed provider will pay up to eight times the cash surrender value and will begin paying the premiums immediately,” Seddon says.

Selling a policy to a settlement company can have several advantages for seniors. “They may want to take a trip, visit family, use it for nursing home care or health care, give it to charity or give it to a family member who needs it now,” Seddon says. “As it relates to someone who’s terminally ill, they can use the money for out-of-pocket healthcare expenses, long term care or to pay bills since they may no longer be able to work.”

Seddon indicated that a typical client for a life settlement provider is 75 and older with a policy face value of at least $200,000. Some live on a fixed income and have enough trouble paying their everyday bills. “The reality is that if the premiums are putting a strain on them financially, then selling the policy and using the money now makes sense,” he says. “Also, in the case of those older seniors that are more financially secure, if a policy is no longer needed and there is no logical beneficiary, selling now would also make perfect sense.”

The process is simple. The policy holder fills out an application form and releases medical records and insurance information to the buyer. The buyer reviews the policy for certain requirements pertaining to the policy’s amount, death benefit, cash surrender value and other factors. If these requirements are met and the medical and insurance records are verified, a formal offer can be made. Once the deal is struck, the buyer transfers the money to purchase the policy to an escrow account, where it’s held until the policy ownership is transferred to the buyer. The seller receives his payment within 72 hours, and the buyer takes over the premium payments.

“It’s very important to note that there is no obligation to the seller to sell during the process, and no fees are involved,” Seddon adds. “Even after the offer is accepted, the deal is signed and the funds are transferred, the seller, in most states, has a 15-day rescission period to mull it over. This means the seller can walk away if they change their minds before that 15-day period is up.”

Of course, selling your policy isn’t always the right decision, Seddon notes. “If you have no use for the money now and you have a beneficiary that will need it upon your passing, it would not make sense to sell it. And if you’re in great health and relatively young, it would make no sense at all.”

Above all, Seddon wants to educate senior Americans and help them make the right decision for themselves and their loved ones. “It’s tragic, frankly, that our seniors pay premiums on their policies for many, many years and are then forced to surrender the policies after the age of 65 for financial reasons. “Our seniors deserve better than that. The first step is to raise awareness and help them to understand that they have other, better options.”