Mortgage Killer Accelerator

Strategy 43 of 107

65 and over: sell a policy you no longer need instead of surrendering it

Depends on markets or variable ratesFrom an asset you already own

What it is

If coverage is no longer needed and premiums are a burden, compare the surrender value with offers from licensed life settlement providers; offers can be higher.

Steps

  1. If coverage is no longer needed and premiums are a burden, compare the surrender value with offers from licensed life settlement providers; offers can be higher.
  2. Use a licensed broker who works for you, and get several offers.
  3. Send the proceeds after tax to principal and ask for a recast.

Repeat: Once.

Measure: Net proceeds after tax and fees (enter as a one-time amount).

Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • Your heirs lose what the policy would have paid them.
  • Part of the proceeds can be taxable; fees can be large.
  • It can affect Medicaid and other benefits.
  • Check first whether the policy can be reduced or converted instead.

Who it fits

Grandmas and grandpas (62 and over), Higher net worth, with assets

Needs

65 or older; Owns a policy that is no longer needed

How predictable

Depends on markets or variable rates

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (grandmas and grandpas (62 and over)). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: if coverage is no longer needed and premiums are a burden, compare the surrender value with offers from licensed life settlement providers; offers can be higher.

Suppose it brings a one-time $30,000 on principal. The loan would be paid off in 22 years 10 months instead of 30 years, saving about $134,798 in interest. To finish in five years, they would still need about $3,387 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Estate and giving stack: Turn assets that no longer fit into principal with as little tax as the rules allow, then recast to lower the payment.

Sources and more information

Where to get help

Related strategies

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