If you’re very old or terminally ill, you may find yourself in financial dire straits. Health care costs are high in this country, and they’re higher still for those who require extensive treatment and care for chronic or life-threatening conditions. Even if you worked hard to save for retirement, medical bills and other emergency costs could destroy your carefully laid plans and put you in a financial situation that seems impossible to conquer.
At times like this, you’ll want to consider something that you may not have even known was possible: selling your life insurance policy.
This option is a powerful tool for those who need it, explain the experts at the aptly named Sell My Life Insurance Policy. Essentially, selling your life insurance policy is exactly what it sounds like: You’ll be exchanging your eventual life insurance payout (which, of course, will come after you pass away) for cash now, when you need it most.
But money is money, and you have been paying into your life insurance policy for years. Why would it suddenly make sense to sell that same policy for cash? The answer comes in the form of your specific situation and an understanding of interest and debt. Here’s what you need to know.
You need cash now
At its core, the idea of selling your life insurance policy boils down to just one thing: You need money now.
Life insurance policies are designed to pay out after you die. That’s because you want your loved ones to be cared for after you’re gone. When you’re younger, you want to make sure that your own death won’t destroy your family’s finances. If you’re the main breadwinner in your family, you need a life insurance policy to make up for lost income and help cover funeral expenses.
But toward the end of your life, these needs might not be as dire. Meanwhile, new and pressing expenses may arise. If you’re terminally ill or very elderly, your life insurance policy payout is on the horizon — but may not come soon enough to help you keep the lights on this week. With pressing financial needs, you’ll prefer cash now.
And this only becomes truer when we consider the dangers of debt.
Cash now can be worth more than cash later
You need cash, but you’ll get cash either way (or, rather, your family will) — so what’s the difference?
The difference is that, over the long term, waiting for your life insurance payout can leave your family with much less wealth.
The key here is that your current financial strains could lead to debt. If you fail to pay your medical bills and other expenses in full, that could damage your credit (and that of your spouse, depending on the situation). You may see credit card debt and other dangerous forms of short-term debt mount. You may even have to take out a loan.
And debt generates interest. The longer you leave that credit card balance there, the higher the costs get. The loans you take out will demand that you pay back more than the principal amount over the term of the loan — that’s how interest works, of course. In short, waiting for your life insurance policy to pay out will mean that your family has more debt to pay off with that sum; similar amounts of money won’t go as far then as they will now.
And it can be worse than that. Consider the cycle of debt, in which borrowers struggle just to pay off the interest and never make much of a dent in the principal. If things get bad enough, your life insurance payout won’t be enough to allow your family to avoid bankruptcy, much less build wealth.
In situations like the ones we’re describing, cash now is simply worth more than cash later. That’s when you’ll want to consider selling your life insurance policy. For more information, see a financial adviser or other expert.
