American seniors own more than 38 million life insurance policies. In many cases, those policies are unwanted, unneeded, or too expensive to maintain. One solution to the problem of a life insurance policy that no longer fits into a family’s financial plan is to sell it through a life settlement.
A life settlement transaction involves the policy owner and a life settlement firm or group of investors who buy life insurance policies.
The policy owner receives more money in a life settlement than they would by surrendering the policy to the life insurance company for its cash value. The life settlement investor takes responsibility for future premium payments and becomes the beneficiary of the policy.
The Lifeline Program published the results of a survey conducted in 2013 showing that 55% of seniors let their life insurance policies lapse. When a policyholder stops paying their premiums, their life insurance lapses, and the insurance company keeps all of the money spent on insurance premiums over the years. The insurance company also never has to pay a death benefit.
How to know if a life settlement is the right choice
Since everyone’s situation is different, there’s not a one-size-fits-all answer to whether a life settlement is right for you. Before pursuing a life settlement solution, be sure to consider all of your options.
Here are some questions to ask your life insurance company if you can no longer afford your life insurance premiums:
- What is the current cash value of my policy if I decide to surrender it?
- Do I have enough cash value built up in my policy to pay the future premiums?
- Is my term policy convertible to a permanent policy? If so, what is the premium if I convert it to a permanent policy?
Here are some questions to ask your life insurance company if you don’t need your life insurance policy’s death benefit any more:
- How much money would I receive if I cashed out my policy today?
- Can I cash out my policy and keep just enough coverage to cover funeral expenses?
You may be able to work with your insurance company to keep a portion of your death benefit in place while getting the cash you need out of your life insurance policy.
If you no longer want or need the death benefit or you simply can’t afford to pay your life insurance premiums, a life settlement may be your best choice.
How to research life settlement solutions
If you are curious about whether you qualify for a life settlement, you can get a few quick quotes online that will give you an idea of whether or not your policy is marketable among life settlement providers.
Without having to provide a lot of personal information, you can quickly learn whether your policy is a good fit for a life settlement. If so, you can decide whether to use the services of a life settlement broker or not.
When researching life settlements, be sure to comparison shop by getting multiple quotes. You can only sell your life insurance policy once, so it’s smart to make sure you have competitive offers.
Don’t lose your lifelong investment. Discover your policy’s value today.
Understand your life insurance policy
If you aren’t sure about what type of life insurance policy you have, contact your life insurance company to find out if you own a term or permanent policy. Either way, your policy may be eligible for a life settlement solution.
It’s also important to know your yearly premiums and the face value of your policy. When you get estimates from life insurance providers, they’ll want to know these basic facts about your life insurance policy.
Pay attention to possible tax ramifications
Talk with your tax advisor about whether you’ll pay income taxes on your life settlement proceeds. Many recipients of life settlement funds find that most, if not all, of the proceeds of their life settlement are tax free. Your tax advisor can make sure you aren’t setting yourself (or your family) up for a big surprise tax bill.
Research your state's laws about life settlement solutions
Contact your state’s attorney general to make sure that your life settlement company is licensed to practice in your state. It’s crucial to understand your state’s laws about waiting periods, as well.
The territory of Puerto Rico and 43 states regulate life settlements, which means that about 90% of the population of the United States is protected by comprehensive life settlement laws.
Even so, it’s important that you understand how your state protects you (or doesn’t protect you) if you decide to proceed with selling your life insurance policy.
In many states, you have the legal right to change your mind, even after you sign the paperwork for a life settlement.
Get a free life settlement quote
Many licensed companies that buy life insurance offer free quotes and will talk you through the process so you understand your options.
Your life insurance policy belongs to you, just like any other asset. You have the right to sell it, freeing yourself from expensive premiums. You also have the right to keep all or a portion of your life insurance intact if you choose to continue to pay the premiums.
How to find companies that buy life insurance policies
Insurance companies, banks, hedge funds, and pension funds invest in life settlements. In today’s investment marketplace, purchasing fractional interests in a number of life settlements is a smart way to diversify. Life insurance policies are bundled as a single investment so no one profits directly from someone else’s death.
Why use a life settlement brokerage
A life settlement broker helps policy owners get the best possible offer for their life insurance policy. The broker may charge a commission, but their payment structure should be transparent.
Life insurance owners who want to take a hands-off approach to selling their policy may prefer to work with an experienced broker who has connections in the world of life insurance investors.
Although the process may take a bit longer with a broker, the policy owner may end up with higher offers than they would have if they approached a single company on their own.
Even though many people who sell their life insurance policies do so with help from a life settlement brokerage, it’s possible to pursue a life settlement solution on your own. You have the legal right to sell your life insurance policy directly to a life settlement provider without help from a life settlement brokerage.
What you should know about viatical settlement providers
A viatical settlement provider helps a terminally ill person access the cash value of their life insurance through a life settlement while they are still alive. If there’s not an accelerated death benefit rider on the policy and the insured person needs immediate cash more than they need the death benefit, a viatical settlement allows them to sell the policy to investors.
If you are interested in pursuing a viatical settlement, it’s important to choose your provider carefully.
Be sure to ask about the licensing laws in your state. Your viatical settlement provider should have the proper credentials to handle your settlement legally.
A viatical settlement provider should be especially sensitive about your unique situation. They should disclose all of their fees upfront and make sure you understand every step of the viatical settlement process, including when you should be able to access funds from your viatical settlement.
If you want to leave a portion of your life insurance proceeds to your loved ones, you may be able to sell part of your life insurance policy and preserve some of the death benefit. Your viatical settlement provider can talk you through the options. Frequently Asked Questions about life settlement solutions.
Frequently asked questions about life settlement solutions
Am I eligible to sell my life insurance policy?
Maybe. Most successful life settlements happen when the insured person is over the age of 65 or has been diagnosed with a terminal illness. Permanent life insurance policies and term policies that are convertible to permanent policies are best suited to a life settlement. The best way to find out if you can sell your life insurance policy is to contact a life settlement advisor to learn more about possible life settlement solutions.
Why didn't my financial advisor tell me about life settlement solutions?
In some cases, your insurance agent or financial advisor may be unaware of the life insurance settlement option. The industry is growing rapidly and is now well-regulated in most areas of the United States. Life settlements are a good option for many policy owners, but lack of knowledge among financial advisors prevents many people who may benefit from a life settlement from understanding their options.
How can a life settlement brokerage help me?
A good life settlement brokerage will connect you with one of their experienced life settlement advisors who can walk you through the process of selling your life insurance policy. They'll explain every step of the process and help you understand the timeline so you know what to expect.
What are my choices when it comes to life settlement solutions?
Depending on your life insurance policy, your health status, and your age, you may or may not be able to sell your life insurance through a life settlement. Life settlement solutions aren't right for everyone. If you are a senior who no longer wants or needs the death benefit provided by your life insurance policy or you can no longer afford to keep up with your premiums, a life settlement solution can serve your financial interests better than allowing your policy to lapse.
What should I know about companies that buy life insurance policies?
Companies that buy life insurance do so as an investment vehicle. They purchase life insurance policies and sell portions of those policies to investors. In most cases, your policy isn't purchased by an individual, but rather a group of investors that will receive a fraction of your death benefit when you pass on.
Can I legally sell my life insurance policy in the United States?
Yes. In the United States, your life insurance policy is legally your property, just like anything else you own. You have the right to sell your policy to an investor or group of investors if the terms of the sale are mutually beneficial and both parties are in agreement.
What should I look for in a good viatical settlement provider?
A good viatical settlement provider should be licensed to facilitate the sale of life insurance policies in your state. They should be respectful, sensitive, and knowledgeable about the viatical settlement process so you feel like you have a partner with mutual goals.
In a life settlement, how much is my life insurance policy worth?
If you decide to use a life settlement solution to sell your whole life insurance policy for cash, you should expect to get more money than you would if you surrendered your policy back to the insurance company.
In general, you can expect to get 20% of the face value of your policy through a life settlement if you meet the age and health requirements of the investors. In some cases, you can expect to receive much more than 20% of your policy's face value.
According to the Life Insurance Settlement Association (LISA), more than 90% of seniors who have allowed a life insurance policy to lapse would have considered a life settlement if they had known of the option to sell their policy for cash.
If you think a life settlement solution may be the right choice for you, start researching your options, today.
A trustworthy life settlement advisor will carefully lay out your options as they apply to your individual situation so you can make the best possible decision.
Don’t lose your lifelong investment. Discover your policy’s value today.