Life Settlements for Seniors

What Are Life Settlements?

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If you find yourself with a life insurance policy you no longer need, you may be in a position to take advantage of a life settlement. Life settlements for seniors exist so that you are able to sell your life insurance policy to a third party for a cash payment. In exchange, the buyer takes over making premium payments and therefore receives the death benefit upon the policyholder’s passing. 


Opting for a life settlement is often a wise choice when the life insurance policy is no longer serving its original purpose. Some of the most popular reasons why seniors choose life settlements include:


  • The intended beneficiary has become financially independent; no longer needs the death benefit if something were to happen
  • The intended beneficiary has passed away
  • Unexpected financial hardship, such as medical expenses
  • Change in the long term cost of living, such as new expenses brought on by retirement or moving to a new state
  • You can’t afford to make the premium payments any longer

Whatever your reason may be for exploring life settlements for seniors, you’ve come to the right place. We’ll go over things like:


  • What life settlements are and who is eligible
  • Are life settlements taxable?
  • Are they good investments?
  • Are there any alternatives to life settlements?

Let’s get started.

What Are Life Settlements?

Simply put, a life settlement is the sale of your existing life insurance policy for cash. It benefits you as you’re able to access a large amount of cash now, while simultaneously being relieved of having to pay the monthly premiums. The buyer has the duty of taking over the monthly premiums as well as the death benefit. In the right situation, it creates a win-win for both parties.

Life settlements for seniors generally have a few eligibility requirements before you can consider them:

  • Policyholders must be 65 years of age or older
  • The death benefit must be at least $100k
  • Most of the time, only permanent life insurance like whole or universal life is eligible

The amount that you’ll receive from a life settlement is less than the death benefit but more than the policy’s cash surrender value.

Additionally, there are other forms of life settlements available as well: these are known as viatical settlements. Viaticals differ in that they are for policyholders who are terminally or chronically ill, usually facing a life expectancy of 2 years or less. As such, the other eligibility requirements may differ and the payouts are usually larger.

Life Settlements for Seniors

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Are Life Settlements Taxable?


Currently, the profit portion of life settlements are taxable. What does that mean?


It is defined as the difference between premiums you paid and the cash payout you receive from the sale of the policy. Furthermore, part of the tax you pay on the profit is taxed as capital gains while some is taxed as ordinary income.


In other words, think about all of the premiums you have paid over the years into your life insurance policy. When you opt for a life settlement, the sum total of those premium payments are not taxable. 


Are Life Settlements a Good Investment?


As the policyholder, whether or not life settlements are a good investment depends on your needs as well as those of your family and/or beneficiaries.


Life settlements for seniors offer more upfront cash than surrendering your policy to your insurance company, but less than the death benefit were you to keep the policy. 


If the policyholder is terminally or chronically ill, a viatical settlement may also be an option, where there are higher payouts for those who have a life expectancy of a few years.


Keep in mind, by opting for a life settlement, you will also save on your monthly premiums.


Whether or not a life settlement is a good investment is entirely dependent on your unique situation, taking into account the beneficiaries and your financial status and needs.

Are There Any Alternatives to Life Settlements?


As you may know by now, with a life settlement, you sell your insurance policy to a third policy who takes over premiums and death benefits. If you need cash now, are there any alternatives to this?


Yes there are. Here’s a look at the most common ones:


Accelerated death benefit: Also known as a living benefit, this allows for you to receive a portion of your death benefit from your insurance company. Keep in mind, this will reduce the total value of your policy’s death benefit and you will have to continue making payments. Your insurance company may have restrictions on who is eligible for this, such as being terminally ill.


Viatical settlement: Similar to an accelerated death benefit, a viatical’s eligibility requirements usually include being terminally or chronically ill. However, it is more similar to a life settlement than an ADB as you will sell the policy for a cash lump sum.


Cash surrender: A cash surrender is when you cash in your policy for its surrender value. While you do work directly with your insurance company to do this, the amount is usually significantly lower than a life settlement amount.

Frequently Asked Questions

How do life settlement companies make money?

When you sell your life insurance policy to a third party, they take over premium payments as well as the death benefit. When a policyholder decides that a life settlement is right for them, and the investors who buy it determine that it’s eligible, it creates a win-win. The policyholder gains access to cash now while the settlement company will be able to retain the death benefit.

How is the price of a life settlement calculated?

The cash value amount that a life settlement will pay you may take into consideration the following factors: your age, gender, health status, policy size, premium costs, any outstanding loans against the policy, what kind of policy you have, and the buyer’s risk.

How do I know a life settlement is right for me?

Life settlements for seniors work best when one carefully weighs their needs. If you’re eligible, you’ll want to look at your need for cash now versus the death benefit, and how each would benefit you and/or your beneficiaries. If you want cash but you’re not ready to sell your policy, you may consider options such as a partial surrender or taking a loan against your policy, both of which will retain the death benefit.

Are life settlements safe?

Insurance life settlements have been around for over a hundred years since the Supreme Court determined that an insurance policy was a piece of property that could be bought and sold. They are regulated across the country to keep consumers’ best interests in mind. If in doubt, you can always double check to see if a company is a member of the Life Insurance Settlement Organization (LISA), which offers additional guidance.

Don’t lose your lifelong investment. Discover your policy’s value today.