Most people purchase life insurance for specific reasons. The most common reason to get a life insurance policy is to make sure that a spouse or other family members have financial support after the policy-holder passes away.
However, if a spouse predeceases the policy holder 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. Consequently, they believe the money is better spent on other things.
One problem with that thinking is this: all of the money that was paid in premiums is 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."