DO NOT JUST STOP PAYING LIFE INSURANCE PREMIUMS

When the specific reasons that an older person originally purchased life insurance no longer exist, that person might be tempted to save money by no longer paying the premiums.  That can be a mistake.

Most people purchase life insurance for specific reasons, the most common of which is to ensure that a spouse or other loved ones are taken care of when they die.

If a spouse predeceases the policy holder, however, or if the other family members are no longer in need of support, then many people think that continuing to pay the premiums is a waste of money.  They may believe their money is better spent on other things.  The problem with this line of thinking is that all of the money paid in premiums over the years is now wasted.

The New York Times recently reported on another potential problem with stopping premium payments in "Wringing Cash From Life Insurance."

Older Americans can often get cash by selling their life insurance policies to life settlement companies that see the policies as good investments.  The settlement company continues to pay the premium and then receives the payout when the original policy holder passes away.

For a life settlement company to see the policy as a good investment opportunity, they have to take a gamble that the policy holder will pass away sooner rather than later.  Therefore, the older and sicker an insured is, the more money he or she is likely to get when selling a life insurance policy.

While it might seem somewhat morbid to sell your life insurance policy to a company calculating you will not live very much longer, it can be a good way for older people who need extra money to get it.

Reference: New York Times (Oct. 13, 2017) "Wringing Cash From Life Insurance."