Cashing in on Your Life Insurance

KABC-TV, Los Angeles
July 11, 2008
Ric Romero

Consumer experts say cashing in on a life insurance policy can be very profitable. However, experts are also saying it can be quite costly.

There have been some ads on television attempting to convince consumers to sell their life insurance policies. This has become a multi-billion-dollar business targeting senior citizens, those in poor health, or people who could use the money.

Eighty-six-year-old Selma Mannheim recently cashed in her life insurance policy so her son, Robert, and other family members could spend the money before she dies. The West Los Angeles resident signed her policy over to a company that will now pay her annual premiums, and collect on her life insurance when she passes away.

"The amount of money given to me surprised me. It was divided between my three children, my five grandchildren and my three great-grandchildren," says Selma.

Seniors looking for quick cash may be able to sell a million-dollar policy for about $300,000 or more. However, it may not be the best idea for everyone.

"There's no regulation ... No government spotlight, no stop signs, or speed bumps or road blocks that stops a crook from cheating my seniors, and that's not OK," says Attorney Frank Darras.

Darras is an attorney who specializes in senior citizen issues. He says many seniors are being taken advantage of. Cashing out life insurance policies could lead to a higher tax bill, which can hit seniors on a fixed income especially hard.

Darras says selling makes sense for people in poor health, those who need the money and for those who can't afford the annual premiums.

If a person decides to sell, he or she should deal with a national company, make sure the broker is licensed, and make sure the broker discloses the commission they collect. Finally, one should feel free to negotiate. A person looking to sell should get at least three bids, and he or she might get a higher price for the policy.

Life settlement policies are not regulated by the state. So the California Department of Insurance warns consumers to be wary. The Department says "seniors need to be suspicious of slick marketing schemes involving 'no-cost' life insurance."

Attorney Darras warns selling a life insurance policy means the buyer is entitled to access your medical records because whoever owns your policy has a financial interest in your life.