Key Factors That Calculate Your Average Life Insurance Payout

When you decide to sell your life insurance policy, understanding what determines a life insurance payout is crucial. Several factors determine the average life insurance payout, including your life expectancy, health condition, policy’s death benefit amount, and policy type. These same factors were considered when you first applied for your policy, and a life settlement company will use them again to calculate your payout when you sell. This article explores these essential factors and explains how they impact the value you can receive for your life insurance policy.

Your Age and Health Condition

The most significant factor influencing your life settlement payout is your life expectancy. Simply put, the older you are and the more substantial your health issues, the higher the payout is likely to be. Life settlement companies use actuarial tables to estimate how long you might live based on your age and health condition. The shorter your expected lifespan, the more attractive the policy becomes to buyers, and thus, the higher the payout you can receive.

For example, a man aged 80 might have an average life expectancy of around 88 years. In comparison, a 78-year-old male will typically be expected to live up to age 82. With life expectancy being a significant component of the payout calculation, the payout for someone closer to their life expectancy is usually higher, according to JG Wentworth.

The Policy’s Death Benefit Amount

Much like any other investment, the larger the potential payout, the more attractive it becomes. This applies directly to life settlements. A policy with a death benefit of $1 million will naturally attract more interest from life settlement buyers compared to a $100,000 death benefit policy. The higher the policy’s face value, the larger the lump sum payment you will likely receive, often significantly higher than the policy’s cash surrender value.

The Policy’s Premiums

Your policy’s premiums also play a crucial role in determining your life settlement offer. Policies with higher premiums will be valued lower than those with more manageable premium payments. A life insurance policy with a $1 million death benefit and a premium of $40,000 per year, for example, will be valued more favorably compared to a policy with a $50,000 premium, as the buyer will be responsible for paying the premiums going forward.

In the case of a universal life insurance policy, the premiums can increase over time, which might influence the life settlement offer. A lower-cost policy may yield a more favorable offer. This is important to consider when deciding whether to sell your policy and comparing available life insurance settlement options.

The Policy’s Cash Value

Another determining factor is the cash value of your policy. Most life insurance policies, especially whole life and universal life, accumulate cash value over time. A policy with a higher cash value can provide a better payout, as this value can be used to help cover future premium payments. If your policy has a substantial cash value, you are more likely to receive a higher offer when selling, since the buyer will have fewer upfront costs to cover.

For example, a $1 million whole life policy with $225,000 in cash value will typically receive a larger payout than the same policy with $175,000 in cash value. Because life settlement payouts are usually higher than the cash surrender value, the higher the cash value, the better the offer. This is one of the key reasons for considering a life settlement rather than surrendering your policy.

The Policy Type

The type of policy you hold is another significant factor in determining your payout. Three primary types of life insurance policies can be sold in a life settlement: term, whole, and universal life insurance policies.

• Term life insurance: Term life policies are typically not as valuable in life settlements as whole or universal policies, as they don’t build cash value. However, if the term policy has a conversion rider, you can often convert it to a permanent policy before it expires and then sell it in a life settlement.
• Whole life insurance: Whole life insurance policies are the most common type sold in life settlements because they build cash value and are more predictable for both buyers and sellers.
• Universal life insurance: Universal life policies are also highly sought after in the life settlement market, particularly because they combine permanent life coverage with cash value accumulation, which can be beneficial to the buyer.

For more details on the different types of life insurance policies, be sure to read our complete guide on selling your whole life insurance policy.

What Disqualifies a Life Insurance Payout?

While many life insurance policies qualify for life settlements, some circumstances could disqualify your policy from being sold. For instance, policies that are too old, have lapsed, or are too small may not qualify. Additionally, certain types of group policies may not be eligible for life settlement transactions. In particular, life settlements for trust-owned life insurance may be subject to additional conditions, such as ensuring the policy remains in force and is properly maintained.

Understanding the Life Settlement Process

Once you’ve decided to sell your life insurance policy, the process typically involves a few key steps:

1. Policy Evaluation: Life settlement providers will evaluate your policy, considering factors like the death benefit, premiums, and your health.
2. Offer Comparison: After evaluation, you will receive offers from life settlement companies. These offers can vary, and it’s essential to compare them carefully to get the best deal.
3. Finalizing the Sale: Once you accept an offer, you’ll transfer the policy ownership to the buyer and receive the lump sum payment.

To get a personalized estimate for your life settlement, you can use our life settlement calculator to see how much your policy might be worth.

Contact Lighthouse Life for a Life Settlement Estimate

If you are considering selling your life insurance policy, consulting with an experienced life settlement expert is crucial. At Lighthouse Life, we can guide you through the process and ensure you get the best possible payout for your policy. Get started here with our online estimate tool or reach out to us for more information.