Seniors Should Take Proactive Steps before Letting Life Insurance Policies Lapse, J.G. Wentworth Advises

Scott Willkomm, CEO of Mortality Linked Products for J.G. Wentworth, said seniors' indecision over what to do with the life insurance policies they no longer need-or need the cash from now-is something his company deals with every day.

"Life insurance is an important financial asset for many seniors, but often elderly policyholders are unaware of how they can sell their life policy for cash that they can use to pay for current needs while avoiding the obligation to continue paying additional premiums, which can rise sharply with age," Willkomm said.

Being unaware of the life settlements option means that many consumers often do what they think is the easiest option and just stop paying their premiums. According to a 2005 joint study by the Society of Actuaries and LIMRA International, the lapse rate for all standard term life policies rate is about 9.5 percent. The rate for seniors is nearly 20 percent in policy years 11 and after. The same study showed that there is a 5 percent lapse rate for all consumers who have Universal Life policies and about 24 percent for seniors in the first five years after the issuance of a UL policy.
   
Before letting a policy lapse, Willkomm suggests that seniors consider these steps. First, they should contact their insurance company to find out the value of their policy. Second, they should research reputable companies in the life settlements market that can purchase their life insurance policy. Third, they should consult a tax professional regarding the tax implications of selling the policy. Fourth, they should consider where they can get the most value out of their policy, either by selling back to the insurance company they purchased the policy from or through the life settlements market. Finally, if they have recently stopped paying their premiums, they should find out if there is a grace period before the policy officially lapses.