Navigating the Life Settlement Process: Tips and Strategies for a Successful Sale
Updated: Apr 27
If you’re thinking about selling your life insurance policy, your first instinct might be to try to DIY a settlement yourself to try to save a little money. Maybe you saw a TV commercial that was very promising and thought that company was just going to hand you the best offer they could (wrong). As a life settlement broker who’s worked in this niche industry for years, I would advise you to not try to do it yourself unless you’re an expert.
The best thing you can do is to talk to a life settlement broker and see if the conversation is helpful before going any further. I’m very transparent with my clients because I know my clients like that, and they almost always pick me when comparing different brokers.
Working with a licensed life settlement company is a great way to make sure you’re well-informed and confident with your decision-making during the process. There are several licensed life settlement companies in your state to help you through this process. These professionals will ensure that you are following all the necessary steps and regulations to get you the maximum benefit from selling your policy.
I’m a DIY guy and understand why someone might try to DIY their own settlement. I’ve fixed my own washing machine, furnace, repaired my cars, fixed boats, home repairs, and many other things. But I would always hire a real estate agent to help me sell my home because they’re going to get you far more exposure in the marketplace and give you the best shot at the highest potential. It’s sad whenever I see a “for sale by owner” sign in front of a house. They obviously think that selling a house is easy and will save the broker fee by doing it themselves. It usually sits there for months, until eventually, they figure out they need experienced help, and out comes the realtor’s sign, and finally things get moving. They could potentially lose thousands of dollars by trying to sell it themselves. Life settlements are similar in this way.
The life settlement market does have a couple of companies that are consumer-facing, but the majority of investment funds do not have call centers for the general public. They rely on brokers to bring them qualified cases and manage the general public. And when an investor doesn’t have any competition, they’re going to try to buy your policy for as little as possible because why wouldn’t they?
Another important tip is, to be honest about your health and life expectancy. It’s not uncommon for me to get an appraisal request where someone has selected the 3-5 year life expectancy, but when I call and talk to them they’re basically just in their early 70s, overweight, and have high blood pressure. Or perhaps they had cancer previously, but it’s been removed, and in remission. With this type of case, sure it’s possible that something fatal could happen in the next 3 - 5 years, but statistically speaking it’s very unlikely, and investors are betting on the most probable scenarios.
Other times people tell me their parents died in their late 70s, so they’re probably going to die around then too. This is a question on a life insurance application when you’re many years younger, but it’s certainly not an accurate way to measure one’s life expectancy when they’re nearly the age that their parents died and really don’t have any major health concerns.
Back in the 60s, the average life expectancy was only around 70 years old, but nowadays it’s closer to 81. That number includes all the people who have passed away from fatal accidents at a young age, as well as people who died of cancer, smoked their whole life, had terrible diets, bad genes, alcoholism, opioid addictions, etc. That means a significant number of Americans live well into their 80s, and sometimes 90s too.
People considering a life settlement figure out pretty quickly that the shorter you have left, the larger your settlement will be. So they want to pick the shortest possible scenario for their appraisal, but it only overinflates the value of your policy. When it comes down to it, if you likely have another 10+ years of life left, you’re not going to get 50% of your death benefit. The numbers just don’t work.
This leads me to my next tip, which is to be reasonable and consider the math that goes into these valuations. If someone has a $1MM death benefit with premiums that cost $65k a year and most likely another 10 years to live, they’re not going to get $350k in a settlement. The investor has to make interest in the money they invest, and in 10 years many sound investments will double your money, so an investor has to factor in the time value of money each year they wait to receive anything back from their investment. It’s not a simple algebra equation of death benefit minus premiums. Someone in that scenario may still get a decent offer, but probably under $100k.
Another important tip is to let your broker know how much time you have to do a settlement. Because there’s a lot that goes into reviewing a case and closing a settlement, settlements can often take several months to complete. Sometimes people only have a few weeks before their policy is going to lapse, and in certain situations, we can get an offer in a couple of days, but if you don’t tell your broker they’re going to assume you have some time before the policy is going to lapse.
Folks with term policies are often asking can I sell my term life insurance policy for cash? The short answer to this is yes, but we’ll need to find out if it qualifies.
Most term policies have a conversion privilege which allows you to replace your term policy with a permanent universal life policy without having to go through underwriting again. An investor is going to want a permanent policy, so they will consider the costs of the conversion to see if they can make an offer.
You can find out if your policy is still convertible by reviewing your original term contract for your conversion deadline, or you can just call your insurance carrier and ask - is my policy still convertible?
If it is, then work with a broker to order the right conversion illustration. They’ll also help you order the right medical records to be reviewed for underwriting and will send your case out to a wide range of investors. If we have multiple investors interested, then we hold an auction until we reach the highest bidder.
I’ve had clients get a $48k offer on their own when I was able to get them $260k. I’ve had other clients get $360k on their own, and I was able to get them up to $400k. In nearly every case it is more lucrative to work with a broker, even if they charge a fee to help you.
What are the steps involved in the life settlement process?
First, find out if your policy qualifies and get a rough estimate from a broker. The broker will then help you gather the right information about your policy and medical history. Once your case is ready they will send it out to a wide range of investors and wait a few weeks to receive bids. If there are multiple bidders then the broker will host an auction until the highest bidder is reached. At that point, you can decide to accept and begin completing contracts, or decline. Once all legal requirements are met, the change of ownership forms are submitted to the carrier, and as soon as there is written confirmation of the new owner, the settlement funds are released to your bank.
How do I find a reputable life settlement provider?
Working with a life settlement broker will help connect you with reputable life settlement providers. They must meet the legal requirements set forth by the Department of Insurance in each state.
What documents do I need to provide for a life settlement?
Investors need policy information and recent medical records to review a case. A signed HIPAA is required. What’s most important is an an-force illustration on the policy or a conversion illustration. Your broker will help you order these the correct way.
4 years in life settlements
About the author:
I'm a life settlement advocate who became passionate about the industry when I helped my grandfather secure over 60% of his death benefit. Recently, I assisted an 81-year-old woman with $140k annual premiums by finding an investor to buy out her policy while still receiving most of her investment back.
I've also helped clients with expiring term policies receive payouts of $10k - $15k by converting to a new universal life policy. I enjoy educating both agents and clients on the potential benefits of life settlements and am always happy to provide feedback on potential cases.