If the original reason for insurance stops, there may still be some value to the policy.
The New York Times recently reported on potential problems with stopping insurance premium payments in “Wringing Cash From Life Insurance.”
The most common reason to get a life insurance policy is to provide financial support for a spouse or other loved one, after the policy holder passes away. However, if the spouse or other loved one predeceases the policy holder, should the policy be cancelled and the money spent on other things?
One problem with that thinking is this: all of the money that was paid in premiums is basically wasted.
Older Americans can often get cash by selling their life insurance policies to life settlement companies that see the policies as good investments.
The settlement company continues to pay the premium and then receives the payout when the original policy holder passes away.
For a life settlement company to see the policy as a good investment opportunity, they have to take a gamble that the policy holder will pass away sooner rather than later. Therefore, the older and sicker an insured is, the more money he or she is likely to get when selling a life insurance policy.