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Tillem & McNichol

Len Tillem and Rosie McNichol

Dear Len and Rosie,

My mother is 72-years-old and has an old $1 million life insurance policy.

She no longer has a need for this policy and she can’t afford the premium payments anyway.

She has enough problems paying for her care at home, and her life savings is rapidly depleting.

Her insurance company has offered her very little if she were to cash in her policy. Does she have any other options?

Joseph

Dear Joseph,

There are always options.

One of them would be for you and your siblings to pay the premiums. If you’re going to get the money after your mother’s death, then this may be a good idea.

But if that’s not feasible, then having your mother drop her policy or cash it in is probably the worst thing to do.

Life insurance companies once had a complete monopoly power over their policies.

Consumer choices were limited to cashing in policies for much less than what they’d pay out on death, dropping them altogether, or paying and paying and paying.

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Today, this is not so. Your mother’s life insurance should be considered as a valuable asset that can be sold, if necessary.

There may be enough money in your mother’s policy to keep her from having to sell her home and move into assisted living or even a nursing home.

She should review her policy, because she now has options that were not available in the past. She can do a “Life Settlement” in which she can sell her insurance policy on to investors willing to buy existing life insurance.

Ironically, most of these investors are insurance companies themselves.

They don’t know when your mother will pass and they get paid, but when they buy 100 or 1,000 insurance polices, they can calculate an accurate rate of return, using the same actuarial life tables they use to sell insurance.

The older your mother is, her life expectancy will be less, and investors will be willing to pay more for her policy.

The good news is that your mother has a good chance of selling her policy for two to three times what her life insurance company will pay her if she simply cashes it in. If she sells her policy, the buyers will pay the policy premiums.

Your mother can use the money to help her spend her remaining days at home.

Or, to avoid having to pay income tax, your mother can likely buy a single premium policy with no continued payments in a tax-free exchange.

The one thing she should not do is to just let the policy go without reviewing it first.

Len and Rosie

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Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 707-996-4505.

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