Seniors who are looking to sell their life insurance policy and receive cash immediately may be interested in life settlements. A life settlement involves the sale of a life insurance policy to receive a lump sum. This allows policyholders to get the fair market value for their life insurance policies by selling them and receiving cash surrender value payments.
A life settlement contract is technically a way to transfer your insurance policy to another party for a lower amount of its face value. Because a life insurance policy can legally be sold, it is considered property. Stocks, bonds, and cars are all examples of property that could be legally sold. You can extract value from assets that are generally only beneficial when you die with a life settlement. Life settlement transactions typically involve large-face life insurance policies, corporate-owned life insurance or key-person coverage.
A life settlement is a purchase of life insurance policies. It pays you a portion of the policy’s face price. At maturity, the life settlement company is made the beneficiary of the policy. It is responsible for all future premium payments and receives the entire death benefit if the insured passes away.
A growing industry
A life settlement allows you to receive large amounts of cash as a payment for your insurance policy, while you are still alive. This allows you to eliminate premium payments, adjusts for the changing needs of your dependents, and gives you greater financial flexibility.
You can also use life settlements for charitable giving. When life settlements are used in a planned gift program, it is possible to use complex tax and estate planning strategies. This is how it works: Your life insurance policy is donated to a charity organization. The charitable organization immediately sells the policy for cash via a settlement.
These and other benefits make life settlements attractive options for seniors who don’t want or need insurance. In recent years, life settlements have seen significant growth. Conning & Co. Research’s 2003 study found that seniors owned about $500 billion in life insurance. Of this, $100 billion was held by senior citizens who are eligible for life settlements. These senior clients are more likely to have their policies sold than ever before, which has helped the market grow.
A separate study by the University of Pennysylvania’s business school revealed that life settlement providers paid consumers approximately $340 million for their life insurance policies that were not performing well. This was a huge opportunity that they didn’t have just a few short years ago. According to research, life settlements alone generate surplus benefits of more than $240 million per year for life insurance policyholders who exercise their right to sell their policies at an attractive rate.
Selling your policy
If you are over 65, have paid off your mortgage, other debts and no longer need financial protection from life insurance, you could be a prime candidate. Your age, health, and length of your policy will all affect the amount you get.
Seniors over 65 have the best chance to sell their policies. They must be older than 65, have a longer life expectancy than 2 years (but less that 10 years), and have not had a change in their health that has caused their insurance premiums to rise. You can sell any type of policy, regardless of the life expectancy. Policies must generally be valued at least $100,000.
The American Council of Life Insurers is a Washington D.C.-based trade group that advises you to look at all options before you sell your insurance policy. Instead of trying to do it all alone, consult a financial advisor who has experience with life settlements. This could include an account/CPA or lawyer (especially an elder law attorney), a financial/estate plan, certified senior advisor, and charitable trust officers.
You might also consider working with a broker, although your financial advisor could submit your case directly to the life settlement company. Brokers are the best at obtaining fair market value for policies in an industry with a limited market for life insurance policies. Brokers submit bids and life settlement cases to multiple companies. This can make it easier for high-bidders to negotiate.
Life settlement companies are investors who fund many transactions every year. Instead of making purchased policies available to outside investors, they hold them as portfolio assets. They have compliance departments in house that review transactions and are supported by institutional funds from major banks.
