How Much of Your Health Is Really Protected by Your Life Insurance?

People take out life insurance policies for many reasons, including retirement planning and investment. One of the most common reasons young people invest in policies with large death benefits is due to the fact they can sell their policy later for a lump sum that they can then spend however they please. This can be helpful when paying for a house, contributing to a child’s college fund or other major costs.  

But what many people don’t consider when signing up for life insurance is what their options are to settle later. Two of the most often confused terms are life settlement and viatical settlement. In this post, we will explore the difference between the two to help you better understand your coverage. 

What Is a Life Settlement? 

When you sell your insurance policy to a third-party buyer, they give you a cash amount in exchange for your death benefit. This means that none of your listed beneficiaries will receive any money upon your passing. Instead, it will all go to the buyer. You, however, are free to spend the money that you settled for however you want. There are no restrictions on what the finances can be used for, so many have used this method to cover anything from retirement living to debt repayment. 

What Is a Viatical Settlement? 

While the process of receiving money is the same, there is a key factor that differentiates a viatical from a standard life insurance settlement. That is life expectancy. Someone who is looking to sell their policy in a viatical settlement generally must have two or less years to live. While no one wants to imagine themselves in this position, it is helpful to know what your options for financing are if you ever receive a terminal diagnosis. In the event you are told you have a short life expectancy, viatical settlements can help you plan for what is next without placing a tremendous financial burden on your loved ones. You can review a guide on everything the viatical settlement process involves here. 

Family Planning and Beyond 

When you get married or have children, life insurance is essential, but not for the reason you may think. While caring for them in the event of your death is important, you can also use the money you gather from a cash value to finance things like a new house or your child’s education. This strategy is a way to increase your cashflow from the inside out. Cash value life insurance policies are always better for family planning, especially because you can easily add more beneficiaries as your family grows. 

Using Your Coverage to Pay for Medical Expenses 

You can also borrow from a policy that has a cash value to pay for unexpected costs such as medical bills. Although you may not be terminally ill, sudden injuries, treatment and surgical costs for you or a loved one can be astronomical. Even with health coverage, many people fall victim to exorbitant medical bills and struggle to get out of debt. Investing in a whole or universal life insurance policy that accrues interest is ideal for creating a nest egg that could protect you or your family in this situation. It’s worth considering even if you have good health coverage and want to add extra security. 

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