The Ultimate Guide to Life Settlements 2024
What is a Life Settlement?
Many people find, as they get older and their life changes, that the life insurance policies they arranged when they were younger are no longer correct for their current lifestyle, life plans, or income. What many people do not realize though, is that their life insurance policy is an asset and can be sold or “settled” by means of a regulated transaction called a Life Settlement.
Selling a life insurance policy is called a Life Settlement and generates a cash lump sum for the seller.
This is a very different process from surrendering the policy for cash with the insurance provider which would generate a much smaller sum, often less than has been paid in premiums.
Most types of Life Insurance can be sold whether Term, Whole of life Variable or Universal.
A policyholder can sell – or settle – a life insurance policy to a third party for more than the cash surrender value but less than the face value, in exchange for an immediate payment of dollars into your bank. The ownership of the policy transfers to the buyer, who continues to pay the monthly premiums and receives the full face-value when the policy matures.
Life settlements typically pay out 4x as much as the cash surrender value offered by your insurance company.
Life Settlements are for anyone who has a current life insurance policy that they may no longer need or want.
The seller receives a cash lump sum for their policy and has no further obligations. The buyer continues to pay the outstanding premiums. You can contact a life settlement service in your state today to find out how much your policy is worth.
Read on to find out all you need to know about life settlements and why life settlements are so little understood but so important.
Contents
The Ultimate Guide to Life Settlements
What is a Life Settlement?
Why choose a Life Settlement?
Alternatives to a Life Settlement
Selling a life insurance policy
History of life settlements
Where can I sell my life insurance policy?
What information do I need to sell my life insurance policy?
Can I sell my life insurance policy?
Is a Life settlement right for me?
What should I consider before selling my life insurance policy?
How do I sell my life insurance policy?
How much is my life insurance policy worth?
Life Settlements: What does it all mean?
Jargon Buster
Pros and Cons of a Life Settlement
Why choose a Life Settlement
In the US alone, over 13,000,000* policies lapse every year.
What does this mean?
In layman´s terms, lapsing or defaulting is when someone stops paying their premiums and therefore loses all the money they have paid as well as any future benefits.
You may have been paying premiums on a life insurance policy for years or even decades, but for one reason or another, you feel it is no longer needed.
Often as you get older the reasons for having life insurance are less essential. Low interest rates and higher premiums mean the policy is more expensive and less valuable than it once was.
It crosses your mind to stop paying the premiums or cash in the policy.
STOP
Stop and read this ultimate guide to Life Settlements. It might just change your life.
Remember, 260,000* people a week in the US stop paying their life insurance premiums. That’s over a quarter of a million people, every week, who could sell their policy in a life settlement and receive thousands of dollars instead of losing everything.
Selling or “settling” your life insurance policy can generate as much as four times the cash lump sum that would be offered by your insurance provider as a cash settlement if you surrender your policy, and 100% more than defaulting on the premium payments. Contact a life settlement service in your state today.
Alternatives to a Life Settlement
A life settlement can be a good way to get cash for an asset you own but no longer need. But, of course, it is not the only possibility. There are always alternative options, better or worse, to consider.
Life settlement brokers may discuss your alternatives and what might be more suitable for you than a life settlement. Those alternatives can include:
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Letting your policy lapse by no longer paying premiums.
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Surrendering your policy for its cash value to the insurance provider, who will charge large fees.
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Claiming on the Accelerated Death Benefit or Critical illness clause of the policy if you are diagnosed with a qualifying critical or chronic illness.
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Borrowing from the cash value of the policy.
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Using the cash value or dividends from a permanent life insurance policy to cover premiums if you’re having trouble paying your premiums but want to keep your policy in force.
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Converting a permanent life policy to a hybrid policy with a long-term care benefit. However, you must pass a medical to be accepted for the new policy.
Contact a life settlement service today, to discuss the possibilities that are available in your state.
However, many people do not take financial advice before acting. Proper financial advice is essential for anyone thinking about making big financial decisions.
Without the correct knowledge and advice, there could be serious financial consequences such as:
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Defaulting on the premium payments of a life insurance policy
This is a major mistake and should be avoided if at all possible.
Every year, 5.4%* of life insurance policies lapse due to non-payment of premiums. That is 260,000* policies a week which equates to up to $827,000,000* lost out of people’s pockets each week.
Defaulting on your payments means you lose all the money you have paid over the years and the insurance provider benefits from your money.
This option, therefore, must be avoided at all costs: the following two options are far preferable to losing all your hard-earned money.
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Surrendering a life insurance policy
The second common mistake is asking the insurance provider for a surrender value cash payout. Although this may seem like the only possibility for you, the cash payouts they offer are often disappointing and much less than the policy is worth. They also charge a surrender fee which can be high on younger policies.
The insurance provider will only offer a small cash value compared to what you have paid, minus a hefty surrender fee.
Although this option is better than defaulting in which you lose all your money, it is still not the best financial choice for most people.
Selling a life insurance policy
Choosing to sell your life policy is by far the best option for the majority of people.
Selling your policy will give you up to four times the amount that you would get for surrendering the policy.
That is more dollars in your pocket to spend however you want. The buyer takes all the responsibility for future premiums and you have no more obligations, just money in the bank.
History of Life Settlements
What we now call a Life Settlement was unheard of until, in 1911, an American gentleman called John Burchard sold his life insurance policy to a Dr Grigsby for $100 in exchange for life-saving surgery.
Subsequently, after Mr Burchard´s death, the estate administrators of Mr Burchard tried to stop the Insurance provider from paying Dr Grigsby´s claim. The matter ended up in the Supreme Court who ruled that a life insurance policy is indeed an asset or possession, and therefore can be sold just like any other personal possession.
This case became known as Grigsby v. Russell and was a landmark court ruling. It opened the doors to the possibility of treating this asset like any other, to be bought, sold or used as collateral against a loan.
Despite this ruling, there was no major change to people´s behavior for many decades and a limited supply of investors. Indeed, many people did not even know that a Life Settlement was an option.
It wasn´t until the 1980s and the AIDS crisis that Life Settlements became more common. At that time, there were no life-saving anti-viral drugs like there are now, so a diagnosis of HIV was a life sentence. Young men and women who were unfortunate enough to catch the virus learned that they could sell their life policies to pay for their medical treatment or enjoy the last few months of their lives.
Due to this crisis, the life settlement business expanded with more businesses seeking this route as an investment opportunity, which became known as the Traded Endowment Policies, or Traded Life Policy Investments (TEP and TLPI) markets.
Even today, many people still believe that receiving a terminal diagnosis is the only way to sell a life policy, but this is just not true.
Anyone can sell their policy for any personal reason whatsoever.
The insurance companies reacted to this by offering bolt-on clauses to their policies, called Accelerated Death Benefit or Critical Illness cover, which pay out if the insured receives a terminal diagnosis. This is often referred to as a Viatical Payment. So, in fact, by far the vast majority of policies are sold by people who are not ill as, these days, more and more perfectly healthy people are making the personal decision to sell their life insurance policies.
Most life settlements are made by healthy seniors looking to enjoy their investment.
Where can I sell my life insurance policy?
There are two options to sell your life insurance policy.
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A life settlement provider.
These are investment businesses licensed to trade in the Traded Endowment Policies or Traded Life Policy Investments (TEP and TLPI) markets. They buy life insurance policies in regulated transactions, either for themselves, for private investors, or for mutual funds. They will offer you a good and fair price and charge you no fees. Providers will sometimes use multiple agents to work on their behalf. Each state has different regulations, so it is important that you deal with a provider or agent licensed to trade in your state.
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A life settlement broker.
These are businesses or individuals who are licensed to act on your behalf, for a fee. They will conduct a competitive bidding process between multiple life settlement providers to find you the best possible price for your policy but will subsequently take a percentage-based fee from your payout. Each state has different regulations, so it is important that you deal with a provider licensed to trade in your state.
To contact a licensed life settlement service in your own state today click here.
It is good practice that any service that you deal with is registered with LISA (Life Insurance Settlement Association) which constantly strives to improve industry standards and inform the public. LISA is focused on the promotion of best practices and the positive development of the Life Settlement industry´s reputation.
What information do I need to sell my life insurance policy?
In order to buy your policy, a life settlement service will need to know a few important facts about you and your policy. So, dig out your policy paperwork and have it all to hand before you contact a provider. Initially, you will need to supply:
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Your full name
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Your date of birth
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Your nationality
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Your address
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Your email
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Your telephone number
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The name on the policy
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The Insurance company name on the policy
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The policy value
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The policy term: how many years
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The policy start date
This, of course, is not an exhaustive list as each life settlement service will have their own list of data they need, depending on their clients and state regulations.
Can I sell my life insurance policy?
Most types of life insurance policies can be sold although, of course, some are considered more desirable and therefore would attract a better cash price. Term, Whole Life, Variable, Universal and Survivorship policies can all be sold. However, you will be unlikely to be able to sell any life insurance policy provided by your employer or issued by the government.
There are some basic criteria that your buyers will be looking for when it comes to selling your policy
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Are you over 65?
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Is your policy worth a minimum of $100,000?
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Are your monthly premiums paid up to date?
If you can answer YES to all three questions above, then a buyer will be able to offer you a fair price. Even if you don´t meet all the criteria, it may still be possible to sell your policy, although it may be worth less.
Most types of policy can be sold whether Term, Variable, Universal, Survivorship, or Whole of life policies. However, a Term policy is less desirable, and you may be required to convert it to a Whole of life policy with your provider before it is considered saleable.
The possibility of a Life Settlement should be explored by everyone thinking of disposing of an unwanted life policy.
Approximately 260,000* life insurance policies lapse every week in the US, leaving the policyholder with nothing.
All of these lapsed policies may have had a cash value to the owner, so reading this article could earn you thousands of dollars.
Life Settlement services have funds and investors waiting to buy every single policy that would otherwise lapse or be surrendered.
The Life Settlement market is most definitely a seller´s market, and there is no need for anyone to surrender their policy or allow it to lapse when for a few simple questions they could receive a cash offer for their policy.
Is a Life settlement right for me?
There are as many different reasons to sell your life policy as there are reasons to take one out in the first place. Just some of the possible reasons are:
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You have no descendants.
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You have just been divorced.
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You are considering major life changes such as moving state or to Europe.
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Your descendants are no longer dependent on you.
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You need a lump sum of money yourself.
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You can no longer afford the premiums.
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You are going into long-term care.
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You have been diagnosed with a serious or terminal illness.
Let’s delve into these reasons a bit more thoroughly:
You have no descendants
Perhaps you took out the life policy when you married.
Looking toward the future you wanted to protect your spouse and your future children from financial hardship.
So, you took out a policy that would give them a payout to cover the mortgage and bills in the event of your death.
A very sensible and adult thing to do. But now you are older, children never arrived as expected and you and your spouse are financially stable. That plan is no longer relevant to your lifestyle, but you are still paying the premiums.
You have just been divorced
Your policy was taken out when you were newlyweds.
Your wife is the beneficiary.
Your children are all grown up and have their own careers and are financially stable.
Do you want your ex-wife to benefit from your death?
I´m guessing not.
Maybe you took a policy out on your ex-partner before you split up, and no longer need it? Or do you have a joint policy?
Selling the policy might seem like the best option for you.
You are considering major life changes
Maybe you are upping sticks and moving state or to Europe, maybe you want to re-train for a new career, or maybe you want to move to the country and open a B&B. All of these life changes need capital investment.
You will need a non-Lucrative visa to live in Europe which often requires a large lump sum of money. And if you plan to retire to one of the sunshine states, you will need a lump sum of money to help you enjoy your new life.
The answer to all of these may be locked in that life policy that you took out 20 years ago.
Your descendants are no longer dependent on you
Your children are all grown up. Their careers are blossoming. They have houses, children of their own, and good incomes.
The life policy that you took out to protect them would now just be a drop in the ocean for them, so why continue paying?
You need a lump sum of money yourself
Something has happened in your life; you have big plans or big problems.
You need a lump sum of money fast but have nothing valuable to sell.
Maybe your life insurance policy will be the answer to your prayers
You can no longer afford the premiums
This happens to so many people. You lose your job, change careers, retire, or over-stretch yourself. The life policy premiums will probably be the first thing you decide to stop paying, as they seem irrelevant.
But stop: you may be throwing money away.
Think about selling your life policy. The transaction could be completed quickly and simply and provide you with a cash lump sum. Wouldn´t that be great?
You or a loved one are going into long-term care
Your life insurance policy is considered as an asset when you are going into long-term care and you may have to cash it in to help pay for your care. But the cash-in price is never the best price you can get.
Consider selling the policy, just as you would any other asset or possession. You may be surprised by its value.
You have been diagnosed with a serious or terminal illness
Your prognosis is not good, your doctor has told you that you may not see your forthcoming birthdays. This could well be the time to sell your policy and enjoy the money yourself while you still can.
Check that your policy does not include Accelerated Death Benefit or Critical Illness cover. If it does not, then a Life Settlement or Viatical Settlement may be for you.
In this instance, there is no lower age limit for selling your policy.
Whatever your reason for selling your policy, it is a big important decision and should not be taken lightly under any circumstances. You should always seek financial advice to make sure it is right for you. But once you have weighed up all your options and considered all the consequences and decided to do it, you may think that you should contact your insurance provider for a cash sum to surrender your policy.
The sum they offer may seem very tempting, but please think twice;
Selling your policy could be worth 3x to 5x more than the surrender value cash payout from your insurance company.
Yes, you read that right! Typically, a Life Settlement will pay out more than FOUR TIMES the surrender value for your life policy.
Think about what you could do with all that extra money and no more premiums to pay.
What should I consider before selling my life insurance policy?
The first thing to consider is, do you have dependants who will need that money if the worst happens?
Has your spouse taken time out of their career to bring up the children?
Would your spouse be able to manage the mortgage and the bills if you were no longer around?
Are your children (or other descendants) dependent on you to support them?
Do you have financial commitments that might become a burden for those you leave behind?
Will my loved ones have to find the money for my funeral arrangements?
If the answer to all these questions is NO, then perhaps a life settlement is something for you to consider. You should always seek financial advice to make sure it is right for you.
You may also want to sit down and have a heart-to-heart to discuss the decision with your descendants, but at the end of the day, the decision is yours and yours alone.
How do I sell my life insurance policy?
It can often take between 60 to 120 days to complete the entire process but have patience, the relatively short wait will pay off financially when you choose to sell your life insurance policy.
Although the process takes time and is complicated for the professionals, it can be broken down into four simple steps for us to understand:
1. Application
The application process is designed to protect your privacy and comply with all the applicable regulations.
2. Information gathering
A medical exam is not necessary, but policy information and medical records are essential in order to evaluate a life settlement. This will all go on in the background while you relax and wait. You may be asked to fill out a simple medical questionnaire.
3.Appraisal
Each unique case requires a full appraisal of the policy conditions and the current state of health of the insured to give the best possible offer.
4.Offer
The offer will consist of an amount of money and could include certain conditions such as timing or retained death benefit.
If you are happy with the offer then you sign on the dotted line and wait for the money to drop in your bank.
How much is my life insurance policy worth?
There is no simple answer to this question. Each and every person will have a different circumstance, and therefore receive a different offer for their life policy.
Life settlement buyers have to take everything into account from the face value and age of the policy to your own age and state of health.
If you choose a Life Settlement provider, you will be offered a fair price for your policy based on your individual circumstances. This would be a cash purchase and you will have no fees to pay.
If you use a broker, your anonymous details will be entered into a competitive bidding procedure, allowing licensed life settlement providers to bid on your specific policy. The broker will charge you a percentage-based fee for this service.
Both providers and brokers are expected to offer options open to you including the possibility of retained benefits or borrowing against your policy, and whether a life settlement is correct for your circumstances.
But you should also take financial advice before you make any big financial decisions and consider whether you may have to pay tax on any profits made from the Life Settlement.
And when you have reached your decision, shop around for the best life settlement for you. You can start your search by contacting a life settlement service in your state here.
By giving a few simple details about you and your policy, you can get a no-obligation quote on your own personal Life Settlement.
Life Settlements: What does it all mean?
Jargon Buster
Insurance professionals like to use confusing jargon to keep our heads spinning. Below we give you the meanings of just some of the terms.
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Life settlement
The sale of a life insurance policy to the third party who then becomes the policy owner and beneficiary.
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Viatical Settlement
The sale of a life insurance policy where the insured is suffering from a chronic or life-threatening illness.
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Life insurance provider
The insurance company from whom you bought your life insurance policy and to whom you pay premiums.
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Life settlement provider
Licensed purchaser of life insurance policies.
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Life settlement broker
Licensed fee-based adviser who will arrange a bidding process for your life policy amongst multiple life settlement providers on your behalf.
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Policy owner/holder
The person who bought the policy and pays the monthly premiums and deals with claims, etc.
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Insured
The person whose life is insured on the policy.
This may be the same or a different person to the policyholder.
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Beneficiary
The person who is named on the life insurance policy to receive the payout on the death of the insured. This can often be the policyholder, although other beneficiaries can be named to share the payout.
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Life Insurance policy
An insurance policy that pays out a lump sum on the death of the insured.
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Term Life Insurance
This is a life insurance policy that has a fixed term, typically taken out to cover a mortgage if you die during the fixed term. The policy finishes on a fixed date.
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Whole of Life Insurance
This is a life insurance policy that continues in force and the premiums are still payable until the insured dies.
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Variable life insurance
This is an insurance policy that allows the policyholder to decide how much cash value and how much death benefit their premium pays for
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Universal life insurance
Similar to Whole of Life insurance in that the policy continues in force and the premiums are payable until the insured dies, but premiums and benefits can be variable throughout the length of the policy.
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Joint life insurance policy
Insurance that pays out on the death of either yourself or your partner.
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Survivorship Life Insurance policy
Also sometimes known as “second to die” insurance. This is a life insurance policy for couples which does not pay out until both members of the couple have passed away. It is a permanent life insurance and typically has a cash value.
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Retained Death Benefit
Some life settlement agreements allow you to keep a small percentage of the payout on maturity, but you may receive a smaller cash lump sum. If this is important to you, speak to your provider or broker.
Pros and Cons of a Life Settlement
Life settlements are for anyone who no longer needs or wants their life insurance policy and has nobody who is financially dependent on them. Let´s have a look at some of the pros and cons that could
apply to you:
| Pros | Cons |
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In Conclusion, although you may never have heard of Life Settlements, this process might be just what you have been looking for. It’s time to enjoy your retirement.
No need to use your pension to pay for expensive premiums.
No need to scrimp and save to enjoy that retirement you always hoped for.
Click here if you want to be contacted by a national service provider
