Buying life insurance is a great way to keep your family protected in the event of a tragedy. However, you may want to sell your life insurance policy eventually. You may no longer need the policy, or your policy is reaching near its expiration date. A life settlement is also another way to supplement your retirement. Keeping all of these things in mind is important if you are thinking about selling your life insurance.
What Is a Life Settlement?
A life settlement is simply the result of you selling your life insurance policy for cash. The amount you obtain in a life settlement is less than the death benefit, but it’s more than the policy’s cash value. Many people consider a life settlement for long-term care or if they need additional cash for other expenses.
Advantages of a Life Settlement
One of the main benefits of a life settlement is that it allows you to receive an immediate payment more than the surrender value. You won’t have to pay any more premium payments for your policy, as you will have more money for your retirement. A life settlement also gives you the flexibility to cover medical, long-term care, or any unexpected expenses.
Disadvantages of a Life Settlement
While a life settlement offers many benefits, it does have a few drawbacks that you need to consider. For example, your beneficiaries will not receive any money upon your death, and you might become ineligible for Medicaid. Proceeds from a life settlement may be taxed, while a death benefit is tax-free for your beneficiaries. Keeping these things in mind is vital if you are considering a life insurance settlement.
Life Insurance Settlement Options
You have several options if you plan on selling your life insurance policy. The most common options are traditional, viatical, or a retained death benefit settlement.
Traditional Life Settlement
A traditional life settlement is an excellent option for most people. You are potentially eligible for this type of policy if you are over 75 years of age and have a permanent or convertible term policy that’s worth more than $100,000.
A viatical settlement is another option that’s available for terminally or chronically ill people. The investment from a life settlement broker will have a much higher return and will be realized sooner. A viatical settlement will pay out more to the policyholder compared to a traditional life settlement.
Retained Death Benefit
A retained death benefit enables a policyholder to keep a portion of the death benefit after receiving a life settlement. You will receive a smaller settlement compared to the other options, as you are not selling the entire policy.
How Does the Life Settlement Process Work?
A typical life insurance settlement requires an application be taken. Medical Records are secured and the life insurance company is contacted to request insurance information. This process can be time consuming and the paperwork tedious. It can take as long as 3 to 4 months to learn if a policy is acceptable and has a value on the secondary market.
Life insurance settlement options will be determined after all of your medical records are reviewed and a life expectancy is calculated by life expectancy firm. In most cases, the shorter the life expectancy, the higher the offer. From the gathered and researched information, a life insurance settlement company will decide if they want to buy the policy and the amount they are willing to give for it. A life settlement provider will offer this payout directly to you or a life settlement broker. You may be able to negotiate this payout, and you always have the freedom to walk away from a deal.
If you accept the deal, a closing package will be sent which includes a variety of documents if you plan to sell your life insurance. Sometimes this process can become tedious, as the rules vary for each state. A few of the most common documents in a closing package include life expectancy reports, verification of coverage, a letter of competency, and a change of ownership form. Once everything is complete, the payout is transferred to the former policy owner.
What Is the Value of a Life Insurance Policy?
Understanding the current market value of a life insurance policy is important if you are interested in a life settlement. The value is what you should expect to receive when the life insurance policy is sold on the secondary market. The cash value is different and is usually only on an insurance policy that earns interest, and you can sometimes withdraw this money due to an unexpected life emergency.
You can reach out to a policy appraisal firm to research the policy value. Unlike a broker, a policy appraisal will not receive a fee or commission for their service. Broker commissions can range up to 30% of the settlement payout.
About our Firm: When you pre-qualify your life settlement clients, you can avoid a lot of unnecessary work, save time and money. At Policy appraisal.com, unlike brokers and provider companies, we do not require lengthy forms or letters of engagement agreements with you, or the policy owner. Historically, these agreements implied a negotiation process. Unfortunately, this usually locks you into relationship that often leads agents down a path that puts large commissions in deep pocket broker’s hands. A policy appraisal is quite the opposite. We do not require that you or your client, complete an application or sign an engagement agreement. We generate a current market value with a policy illustration and a few medical questions. There are no false expectations extended and you can find out up front if your client is currently suited for a life settlement.