Many policy owners allow their life insurance policy to lapse when they no longer want to keep making premium payments. When the policyholder willingly terminates their universal life policy or whole life policy, they receive the cash surrender value from their life insurance company. But the cash surrender value will not match the actual face value of the policy.
If you are a policyholder who no longer needs the death benefit from their life insurance policy, you can consider selling your policy for a settlement option such as a life settlement or a viatical settlement.
A life settlement is the lump sum of cash that a policyholder receives when they sell their permanent life insurance policy. The sale of a life insurance policy is usually done through a life settlement broker. You also have the option of selling your policy to a life settlement company for a substantial cash payout.
What is A Life Settlement Company?
If you intend to sell your life insurance policy, then hiring a life settlement company is an option you can choose. A life settlement company purchases policies from insured people for a lump sum of money. In exchange, the life settlement provider can collect the death benefit from the policy when the policyholder passes.
Why Should I Sell My Life Insurance Policy Through A Life Settlement Company?
Several factors can prompt a policy owner into selling their insurance policy for a cash payout. Some of them are:
The policy’s premium payments are too high
One of the main reasons why policyholders sell their insurance policy is because they no longer want to keep making premium payments on a policy they no longer need. When you sell your policy to a life settlement provider, they take over any future premium payments.
You need funds for an unexpected expense
If you have an unexpected expense, then you will be needing cash flow. Selling your policy for a life settlement could provide a cash payout that you can use towards expenses such as your mortgage, car loan, or any other debt.
If you have a terminal illness and need money for medical care or long-term care, then you can choose to sell your policy for a viatical settlement instead of a life settlement. To qualify, you will need to have a life expectancy of less than two years. If your medical records or medical history indicate that you may live longer than that, then a life settlement will be the more prudent choice for you.
You no longer need the life insurance policy’s death benefit
If your children are financially independent or if your spouse no longer needs financial help in the event you pass away, you can sell your policy and avoid making any future premium payments.
Your term policy will expire soon
A term life policy is not eligible for selling, nor will it get you a cash surrender value. If you have a convertible term life policy that is about to expire, converting it to a permanent life policy will let you sell it for a lump sum of money.
You want additional money to fund retirement
Retirement means losing your primary source of income and relying on your saved funds and investments. If you need more money, then selling your policy will not only fetch you a considerable amount of cash – it will also help you avoid the extra expenditure of premium payments.
Life Settlement Brokers vs. Life Settlement Providers
If a life insurance policyholder wants help with the life settlement process, they can take the help of a life settlement broker or a life settlement provider.
A life settlement broker is a brokerage company or even an individual such as a financial advisor who helps the policyholder sell their policy. They connect the policy owner with people or companies that want to purchase life insurance policies. In return, they charge a commission for their services.
A life insurance company, on the other hand, is the purchaser of the life insurance policy. The life settlement may be acting on the behalf of institutional investors or operating to collect the death benefits from life insurance policies once the policyholder passes.
What Are The Benefits of Working With Life Settlement Companies?
A policy owner who is looking to sell their existing life insurance policy will have the option to sell their policy themselves, use the services of a broker, or sell to a life settlement provider. While all the options have their pros and cons, working with a life settlement company can benefit the policyholder in the following ways:
- Since the life settlement industry is regulated by laws and the insurance commissioners, a licensed life settlement company will see that the law of the state is followed.
- A life settlement company will help you through the process of settlement.
- They can offer a fair value of your policy and prompt cash payment for your life insurance policy.
They can help expedite the life settlement transaction and reduce the toll on you.
What is the Purpose of a Life Settlement Contract?
A policyholder looking for a life settlement payout will need to transfer the ownership of their policy to the buyer. This transfer will occurr through the signing of a legal document by both parties; a document called the life settlement contract.
The life settlement contract will give the specifics about the life settlement and provide proof that both the parties agreed to the settlement while not under duress. It will be the legal proof that a sale of a life insurance policy took place.
After the ownership has been transferred, the buyer will be held responsible for future premium payments. They will also become the new beneficiaries of the life insurance policy’s death benefit.
Steps In Choosing The Best Company
Before you decide to sell your life insurance policy, you should consider what you should look for in a life settlement provider. Quite often, policy owners are unfamiliar with the life settlement process and what it can mean for them. The following are some of the factors you should consider:
Licensing, Bonding, and Insurance
While most of the States require life settlement providers to be licensed, it is not an absolute necessity in every state.
If your state has a provision for the licensing of life settlement providers, make sure that the provider you choose has a special license that allows them to purchase life insurance policies on the behalf of investors or for reselling. You can also check if the provider is registered with FINRA.
Timing and Taxes
A life settlement can have certain financial implications. If your estate exceeds the stipulated amount, then you may have to pay taxes on the settlement.
A settlement can also disqualify you from government-aid programs such as Medicare. If you need assistance with healthcare, then a life settlement may not be the best settlement option for you. You can opt for a viatical settlement instead.
Which Life Settlement Company to Choose?
A life settlement company should not only provide the best value for your life insurance company – but it should also make the life settlement process easy for you. At Apex, we offer both. In case you have any questions about life settlements and how the whole process works, contact us and we will get back to you.
What is a life settlement company?
Life settlement companies purchase policies from policyholders so that they can collect the death benefit of the policy or help institutional investors diversify their portfolios.
How much can I get for selling my life insurance policy?
The payout from selling your life insurance policy will depend on the face value of the policy, the policy type, and the premium payments. The final payout will be what the purchasing party is willing to pay for your policy.
What is the Life Insurance Settlement Association?
The life settlement market is known as the secondary market for life insurance. To deal with this market, a non-profit organization called Life Insurance Settlement Association or LISA exists.
What does a life settlement broker do?
For a commission, the life settlement broker connects the policyholder looking to sell their policy with buyers that want to purchase life insurance policies.
Are life settlement companies legal?
Yes. The supreme court had ruled that life insurance policies are private property and their ownership can be transferred. Since life settlements work by transferring the ownership from the policyholder to the purchaser - it is completely legal.
How do life settlement companies make money?
There are two ways a life settlement company can make money:
Collecting the death benefit of policies.
Acting on the behalf of large institutional investors.
Do life insurance companies buy back policies?
An insurance agent may offer you the cash surrender value of your insurance policy, but they cannot buy back the policy.