Life Settlements

Rebecca Parson
Rebecca Parson

Rebecca Parson

Author

Rebecca Parson is a financial and tech writer with 10 years of experience writing about topics such as life insurance, commodities investing, and the SaaS industry. She has a master’s degree from Johns Hopkins University and a bachelor’s degree from the University of Mary Washington. Her writing has appeared at money.com, sacbee.com, cart.com, herodevs.com, blanchardgold.com, and more.

Brian OConnel
Brian OConnel

Brian O'Connel

Contributor

Brian O’Connell has been a contributing writer for U.S News & World Report since 2016. A former Wall Street bond trader and the author of two best-selling books; “The 401k Millionaire” and “CNBC’s Creating Wealth”, he has 20 years experience covering business news and trends, particularly in the business and financial sectors. He believes education is the best gift a financial consumer can receive – and brings that philosophy to every story he writes. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more.

By Rebecca Parson, Brian O'Connel
Author, Contributor, Life Insurance

What is a Life Settlement?

A life settlement is basically selling your life insurance policy to another party for more cash than what your insurance company would give you, the cash surrender value (CSV), if you just canceled it. If your policy’s unnecessary or too expensive, selling it is a clever way to earn from something unused, offering you extra cash for any need or desire.

The third-party buyer then becomes the new beneficiary of the policy and assumes all future premium payments. In return, they receive the death benefit upon the policyholder’s passing.

  • The policy owner receives a lump sum payout from the buyer, and in return, the buyer becomes the new beneficiary of the policy.
  • After this transaction, the new beneficiary bears all future premium payments and is entitled to receive the death benefit upon the insured passing.

A life settlement option provides seniors an alternative to lapsing or surrendering their policy.

The amount you receive from a life insurance policy is determined by various factors such as age, health, and policy terms. Typically, the payout is significantly more than the policy’s cash surrender value (the amount you get if you cancel the policy before maturity or death) but less than the net death benefit (specified in the policy minus outstanding premiums, loans, or withdrawals).

life settlements
Selling your life insurance policy give seniors a choice instead of policy lapse or surrender.

How Does a Life Settlement Work?

If someone can’t afford their life insurance, they can sell it to an investor for cash. The person selling the policy gets money, but not as much as the total amount it would pay out upon their death. The new owner, usually an investor, takes over the policy, paying the premiums and receiving the death benefit when the person dies.

The process of selling your life insurance policy is relatively simple.

Once you have decided that a life settlement is the best option for you, you will work with a licensed life settlement broker who will guide you through the process.

Are you interested in finding out the value of your life insurance policy and exploring the possibility of a life settlement? Get your estimate.

The steps involved in a life settlement process include:

  1. Evaluating Your Policy: The first step is determining if your policy qualifies for a life settlement. Your provider will review your policy and gather information such as age, health status, and policy details.
  2. Provide Documentation: You must provide documents proving ownership of the policy and consent from any beneficiaries. The broker will also require a complete set of medical records and other relevant information.
  3. Assessing the Value: Based on the information gathered, the broker will order any necessary documentation, including insurance documents, medical records, and life expectancy reports. The broker can estimate what buyers will be willing to pay for your policy. The broker will then submit the policy package to multiple buyers. Typically, buyers will review and submit an offer within two weeks. 
  4. Accepting or Rejecting the Offer(s): You can accept or reject any of the offers made by the investors. If you accept the offer, you will sign a purchase agreement.
  5. Transfer of Ownership: Once the purchase agreement is signed, ownership of the policy is transferred to the buyer, who becomes the new beneficiary.
  6. Payment: After ownership is transferred, you will receive a lump sum payment from the provider. The buyer will be responsible for making all future premium payments.

The process typically takes 60-90 days, and you can change your mind and cancel the transaction during this time.

When Should You Consider a Life Settlement?

There are various reasons why policyholders choose to pursue a life settlement.

As each individual’s financial and personal situations are unique, here are a few examples of when a life settlement may make sense for you:

  • No longer needing the policy: A life settlement may be a good option if your children have grown and no longer need financial protection or if your spouse has passed away and you have no dependents.
  • There’s a change in your health status: If your health has deteriorated and you are facing financial challenges, a life settlement can provide you with the funds needed for medical expenses or improve your quality of life.
  • Premiums have become unaffordable: As we age, insurance premiums tend to increase, making it difficult for some seniors to keep up with payments. A life settlement can help alleviate this financial burden.
  • You have a better use for the money: Some individuals may choose to sell their policy to fund retirement, pay off debt, or invest in other opportunities. A life settlement allows you to access a significant portion of your policy that would otherwise be unavailable to the insured.
  • The cash surrender value has been exhausted.: If a policyholder has avoided paying premiums for many years, the cash surrender value may have depleted, and they are facing the prospect of lapsing or surrendering their policy without receiving any financial benefit. A life settlement provides an alternative solution in this situation.
  • Immediate financial needs: Life settlements can provide an immediate source of cash for policyholders facing financial difficulties or unexpected expenses.
  • Long-term care costs: Some individuals may use a life settlement to cover the high costs of home health care, nursing home expenses or assisted living.

It’s important to note that a life settlement is not the best option for everyone, and you should carefully consider your circumstances before deciding.

If your life insurance policy is no longer needed or has become prohibitively expensive, consider a life settlement option. A life settlement allows you to convert the policy into cash.

Are you interested in finding out the value of your life insurance policy and exploring the possibility of a life settlement? Get your estimate.

NOTE: If you want more information from a non-biased source, visit FINRA’s website. Regarding future financial decisions, it is always important to research and understand your options before deciding. FINRA, or the Financial Industry Regulatory Authority, is a non-governmental organization regulating the United States securities industry.

When Should You Not Consider a Life Settlement?

While a life settlement can be a beneficial financial decision for many, there are certain situations where it may not make sense. Some factors to consider include:

  • Age: Generally, the older you are, the more your policy is worth in a life settlement. If you are young and healthy, selling your policy may not be viable. It’s also important to consider your family circumstances and if you will need the policy in the future.
  • Policy type: Some policies, such as non-convertible term life insurance, may not be eligible for a life settlement in certain situations. Additionally, some group policies may have restrictions or penalties for selling them before maturity.
  • Tax implications: While the lump-sum payment from a life settlement is often tax-free, it’s essential to understand the tax implications and speak with a trusted tax advisor with experience in life settlements.
  • Alternatives: Exploring all options before deciding on a life settlement is essential. Other alternatives may include surrendering your policy for cash value or borrowing against the policy’s cash value.
  • Beneficiaries: If you have dependents relying on your life insurance policy, there may be better options than a life settlement. Consult with your beneficiaries and consider their needs before making a decision.
  • Future financial plans: Consider the impact of a life settlement on your future financial plans. Explore alternative sources of income or assets that can serve as viable alternatives.

You may have doubts or concerns about whether a life settlement suits you. In that case, speaking with a financial advisor or professional is essential before deciding. The decision whether or not to sell your life insurance should never be made under pressure. Talking with an advisor that has a fiduciary responsibility to you can help you make the decision that makes financial sense for you and your family.

If you want a quote or more information about life settlements, contact us today and receive a free estimate. Our team of professionals is here to educate you to understand your options better regarding your policy, allowing you to make an informed decision for your financial future.

By taking the time to carefully consider all aspects and potential implications, you can confidently determine if a life settlement is the right choice for you.

Do I Qualify For A Life Settlement?

Just because the option to sell your life insurance policy for cash exists, doesn’t necessarily mean you will qualify for a life settlement. 

Some factors that may affect your eligibility include:

  • Age: more often than not, the policyholder must be at least 65 years or older to qualify for a life settlement.
  • Policy Value: the face value of your policy must be at least $100,000 to attract buyers for a life settlement.
  • Manageable Premiums: the buyer of your policy will need to be able to make future premium payments, so policies with relatively low premiums are more attractive. You will need to provide details of premium payments along with your policy for evaluation.
  • Health Condition: Your health condition significantly impacts the value of your policy in a life settlement. You may be eligible for a higher payout if you have any medical conditions or terminal illnesses.
  • Type of Policy: Some types of policies are more attractive to buyers, such as universal and whole life insurance policies. That doesn’t mean term-life policies are ineligible but less attractive to buyers overall. 

The best way to know if you qualify for a life settlement is by talking to a reputable life settlement expert like Beca Life. Our team of professionals will evaluate your policy and personal circumstances to determine if you are eligible.

Don’t waste your life insurance policy or pay high premiums unnecessarily. Explore the option of a life settlement today and potentially improve your financial situation for the future. Get your free estimate now and see for yourself.

Is it Safe to Sell My Life Insurance Policy?

In rare cases, we hear clients ask if the transaction is safe. “If someone else stands to profit from my death, should I be afraid of foul play”?

To assuage such concerns, let’s dive deeper into what happens when your life insurance policy is sold. Typically life settlement buyers package large groups of policies together and sell them as a bundled package to major institutional funds. These funds have thousands of policies and rely on the law of large numbers to hit their target investor returns. If the investor pool owns 1000 policies for a group of insureds between the ages of 82 and 88, it can be safely assumed that they will have a certain amount maturities each year for the next 15 years. This will allow the fund to hit its target return to satisfy its investors.

This approach allows the life settlement investor to spread the risk and minimize the financial impact of any single policy. Large investors in life settlements often do not know the specific insureds they owe policies on. The day-to-day operations and the sporadic contact with the insured are handled by a third-party servicing company. It is similar to a large institutional investor purchasing mortgage-backed securities where a large investor may own mortgages on 1000 homes. Investors in these large mortgage-backed securities work the law of large numbers and do not know any specific homeowner who owes money on a specific mortgage.

Are Life Settlements Ethical?

A concern for people considering selling their policies as a life settlement is that it feels uncomfortable because a third party stands to gain when the insured dies.  This is a valid concern, as it may feel morally questionable to profit from someone’s death. However, life settlements greatly benefit both the policy owner and the buyer. Often, the insured can no longer afford the policy and is not a candidate for an advanced death benefit, or the life settlement fits his financial needs in a way an advanced death benefit cannot.

The only alternative available to the insured may be to surrender the policy. Surrendering their policy may give the policyholder the cash value for their policy, but it is likely to be much less than what they could receive through a life settlement. According to a recent study by LISA, life settlement buyers, on average, will offer over five times the amount that the life insurance company will offer for the cash surrender value. In 2022, consumers received over $640 Million more selling their policies than they would have had they opted for the cash surrender value offered by the life insurance carriers. While some sellers may have an issue with its ethics, it is important to consider the benefits to buyers and sellers and the overall impact of life settlements.

Sell your life insurance policy for cash.

See if you qualify now.

We’re here to help. Speak with a Policy Specialist today at +1 848-456-8333