How to Sell Your Life Insurance Policy for Cash
Welcome to Life Settlement Option, a broker solution that educates life insurance policy owners on the life settlement market while also representing them in the marketplace. Our goal is to find you the highest offer for your policy.
If you're just learning about the opportunity to sell your policy you're not alone. In this article I will cover some important things to consider, and if you'd like to find out how much your policy is worth, go ahead and fill out the free appraisal form on this page and our licensed broker will get back with you promptly with feedback.
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:
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
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
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
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?
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.
How Much is My Policy Worth?
The amount one receives in a life settlement is based on a number of factors including the death benefit amount, cost of future premiums, and how long underwriting and mortality tables suggest the insured is likely to live. The investor is looking to make back a reasonable annual interest rate, so the numbers need to crunch in the right direction for a deal to make sense, and they don’t always work. People with around a 5 year life expectancy often receive 50% - 70% of their death benefit, while people with a 15 - 20 year life expectancy may only receive around 5% of their death benefit if the premiums are reasonable. Some policies are very expensive while others cost a lot less for the same amount of coverage. No two contracts are the same.
How to Get Started
There’s no cost to try the life settlement market, and there’s no obligation to accept an offer. Life settlement brokers are paid a commission by the buyer at the close of escrow, similar to a real estate agent.
If you have questions about your life insurance, how to sell your policy, and how much your policy might be worth, please fill out the free appraisal form or give us a call at 213.784.1481