What is a life settlement?

Most life insurance policy owners are unaware that they have the option to sell their contract to a 3rd party investor.  This type of arrangement is known as a life settlement, senior settlement or a viatical, and typically pertains to contracts where the insured is age 65 or older and the death benefit is at least $100k.  When an insured has a terminal diagnosis they will be considered at any age.   The policy also needs to have been in-force for at least two years. 

Don't depend on the insurance carrier to provide this option.  They would prefer your policy lapses so they don't have to pay the death benefit, but are legally required to cooperate if you find your own settlement.  The life settlement market is a multi billion dollar industry with a large number of mostly institutional investors and has been around since the 1980s, but few consumers still know much about it.   

In a life settlement an investor pays the original policy owner a cash settlement valued at less than the death benefit and more than the surrender value in exchange for ownership of the policy.  Once the ownership has changed the investor assumes all future premiums and also collects the death benefit upon maturity of the policy.  A life insurance contract is considered personal property which can be sold, and the process of selling is treated similarly to a real estate transaction with legal due diligence to protect seniors and their families.  

Who Should Consider a Life Settlement?

A life settlement is not for everyone, and certainly if you need the coverage and can afford it, it often makes sense to keep your policy.  Here are a few common scenarios when one considers a life settlement:

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• Premiums are stretching your budget or have even become unaffordable. Instead of letting the policy lapse and losing everything, perhaps you can recoup some if not all of your investment with a life settlement

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• You simply need access to cash and/or would rather invest the money elsewhere at this point.  This can be an alternative to doing a reverse mortgage

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• A senior requires long term care and does not have LTC insurance.  They can sell their life insurance policy to help cover their cost of care and/or any personal expenses

 

• Life’s changed.  The kids are grown and financially successful, your debt is mostly paid, but you’re stuck in this expensive contract paying premiums for years to come.  Ditch this financial burden by selling it and investing elsewhere

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• A term policy is ending and your policy is still “convertible” to a universal life plan.  The premiums are too expensive on the conversion policy to continue the coverage, why not sell it and get some cash when you were just going to let the coverage end anyway?   

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• Your a business owner or attorney partner and have a policy that covered your debt or share of the business.  You're now retiring or have sold the company, and the premiums are too expensive to keep the policy yourself.  Perhaps you can get a large settlement by selling it.