Fast Facts About Lapsing a Life Insurance Policy: Too often people let their life insurance lapse because they don’t want or don’t have the financial means to continue to pay the premiums. They just don’t know they have other options such as a life settlement.
But not you! You’re about to learn some important facts about those other options. That way, whatever you choose, you’ll be making an informed decision about your life insurance options.
First, let’s start with the obvious. Owning a life insurance policy is common in the US. In fact, that there is currently a stockpile of in-force (that means active) life insurance policies worth more than $21 trillion in death benefits.
Most seniors 65 and older either own either permanent (Whole, Universal) or term life policy. Some term life policies may be converted to permanent policy. This requires new eligibility for you to qualify from the life insurance company.
However, over 90% of individual life policies are either lapsed or surrendered. In both cases, there is no death benefit.
Once the life insurance policy has lapsed for a period of time (based on the terms of your policy), you are no longer eligible to sell your life insurance policy for a lump sum cash payment. A life settlement transaction allows the seller to use the sum of money they receive for anything they choose.
This explains why as much as 90% of the individuals that have terminated their life insurance policies (without knowing they could sell them instead), say they would have considered a life settlement if they knew they had this option.
Lapse vs Surrender vs Life Settlements
According to the 2019 Fact Book of the American Council of Life Insurers (ACLI), in 2018 approximately 7.7 million policies with an aggregate death benefit of more than $550 billion lapsed. That means there no death benefit and premiums paid over the years is gone.
Instead of lapsing, an additional 1.5 million policies were surrendered to the issuing life insurance carriers in exchange for the cash surrender value. Those surrendered policies had an aggregate death benefit of $133 billion. Cash surrender sounds better than lapsing, but it’s still a contractual amount that is based on the policy, amount of premiums you have paid, and how long you have owned the policy. Those policy owners that opt for a life settlement enjoy a far greater cash payout.
The most astonishing figure from the ACLI is perhaps $57 billion and this is the amount paid out in death benefits by life insurance carriers in 2018. $550 billion dollars worth of life policies lapsed and only $57 billion was paid in death benefits. These are big numbers and it’s a very profitable equation for life insurance companies.
What You Need to Know
In percentage terms, lets look at some statistics of life policies that were lapsed or surrendered (for any reason):
- 92.5% of all life insurance policies that ceased to be in force, were terminated by their policy owners
- 75% lapsed, 17.5% were surrendered
- Only 7.5% of all the life insurance policies that ceased to be in force were paid the death benefit upon the passing of the insured person.
Medical Debt Statistics for Cancer Patients
Lapsing a life insurance policy without considering all available options will not solve the issue of medical debt, especially for cancer patients and cancer survivors. Medical debt is linked to financial difficulties for seniors and is most often due to health care expenses that deplete savings and social security income.
For example, Fightcancer.org reports:
- “51% of cancer patients and survivors report incurring medical debt as a result of the costs of their cancer care.
- The debt is often carried for years with significant impacts, including 53% of debt-holders facing collections.”
- “Nearly three-quarters of cancer patients and survivors (73%) are concerned about their ability to pay current or future costs of their cancer care”.
- Cancer patients who filed for bankruptcy had a 79% greater risk of early mortality than patients who did not file for bankruptcy.
These are difficult, but important, statistics.
These numbers remind us how important it is to use all available financial resources in a smart way, especially as we age. Retirees are 25% more likely to have policies lapse than the general population when they face limited income, coupled with premiums that grow year after year.
A Life Settlement is a Better Option than Lapsing Your Life Policy
A life settlement with MRE Finance is often a better option for seniors than lapsing your life policy. A life settlement is when you sell a life insurance policy for a one-time, lump sum cash payout. You can use the funds anyway you choose.
- Pay for medical expenses
- Long term care
- Memory care
- Pay off any debt
- ……and NO more premiums to pay
Learn more about the benefits of selling your life insurance policy on the MRE Finance website. Our team of experts will answer all your questions and explain exactly how the life settlement process works so you can sell your life insurance policy with ease. Call the experts at MRE Finance today! 1-800-521-0770.
Would you like to know how much your life insurance policy could be worth within minutes? The MRE Finance FREE estimate calculator can provide you a value of your life policy within minutes. Start your journey to financial freedom today!