Understanding Insurance Jargon Before Signing On

Life insurance has several dimensions to it. It is not about simply paying an amount each month which finally gets added on to a bigger pool of money. Now there are several add-on features to policies like cash settlements, cash values, viatical settlements or life settlements that you must understand clearly. Signing on a policy that uses these terms must be scrutinized for details and information about what exactly the company is talking about. Insurance providers are rather fond of throwing complex words and phrases therefore it is better to get on the good side of an insurance policy and see what this means for you in monetary terms.

Here’s a run though of some of these common terms:

Life settlement: The concept of life settlements began in 1997. This is a common choice among clients who are elderly or who have health ailments that point to a reduced life span expectancy. In short, this is for someone who does not expect to life for a long time. What happens here is that the beneficiary does not get the funds directly but sells the policy amount to a life settlement company instead. The policies which offer the life settlement advantage ask for lower amounts than the face value of the policy in question. The value of a life settlement does not vary with market forces such as stock markets etc. This is independent of market fluctuations and depends more on the pool of the life settlement policies. There are other situations where clients may opt for life settlements such as:

• The beneficiaries may have passed away before the insured.
• The insured may be financially well-off and may have no requirement for the policy.
• The insured person may intent to give away the monetary value of the policy while the beneficiary is still alive.

Cash surrender or cash-out values: Put in simple language, this is the monetary value that the insured would get if they decided that they did want their life insurance policy any longer. In that case, the company would offer a cash-value for their policy which would be significantly lower than a life settlement value or the final mount that they would have got had they let the policy run on. The cash value that the company offers the client upon voluntary discontinuation of the policy is called the cash-value of that policy. There could be many situations where an individual may opt for the cash surrender value:

• There is a pressing need for money at that time.
• The client wishes to reinvest the money in another policy, perhaps from another company.
• The client has other policies for adequate coverage and does not need this one anymore. For example, he may have joined employment where they cover him with their life insurance.

Viatical settlements: These are similar to life settlements explained above but with some significant differences. Viatical settlements are an option to people threatened with a terminal condition that is serious such as advanced cancer or AIDS. This kind of settlement offers a value higher than the cash-surrender amount but lower than the face value of the policy. The benefits of the policy get transferred to a viatical settlement company. This concept allows you to invest in another individual’s life policy by purchasing a part of it or the whole of it and receiving the death benefits later on. The policy may be purchased at lower rates than you would normally have paid. Viatical settlements do have an element of risk involved and the client should investigate the policy thoroughly before deciding to invest in it.

All the above mentioned concepts lend themselves to exchanging your policies for money. This should only be done if you find your beneficiaries have adequate protection. Involve them in the decision that you are making. If there is a requirement for urgent funds, then a loan would be a better idea than cancelling your insurance policy. 5 tips to help you locate a reliable life-settlement company

1. Make a thorough background on the company first. Are they licensed? Do they have a sound financial base? What is their history? What is their record with claims? Do you know anyone who has dealt with them before?
2. Make a detailed survey of how much different life-settlement companies are offering you in exchange for the policy. Be careful of jumping to sign on a company just because their rate is attractive. Scrutinize offers carefully for any legal loopholes that will nibble away at the final settlement amount.
3. Each state law provides a window period during which you can change your mind after you have signed on with a life settlement company. This breathing space allows you to change your decision in case you find something that you don’t quite like about the company that you have signed on. Use that time period to pursue enquiries.
4. Involve an adult in your endeavor to sign on with a life settlement company. This has a two-pronged effect of having someone to discuss your ideas with as well as an extra brain and pair of eyes to watch out for inconsistencies.
5. To understand the tax implications of your decision, talk to a tax consultant or a financial professional. Do not make your decision solely based on the tax information given to you by the life settlement company.

Life settlement or cash-values should be opted for under certain special circumstances. This is not for everyone. So even if you are toying with the idea of surrendering your policy for a cash settlement or wish to trade in your benefits to a life settlement company, talking to a seasoned and trusted insurance agent is an absolute must. Gather as much information online as you can and make a portfolio which contains everything that you need. Then make notes on areas which are not clear and which need expert advice from a professional.