Key Factors that Determine Your Life Settlement Payout

Clock July 07, 2023


30-second summary

Many of the same factors that determine your premium for a life insurance policy are used to determine a life settlement payout, including:

  • Your life expectancy
  • Your health condition
  • The policy’s death benefit amount
  • The policy type

A life settlement company will use actuarial tables to help calculate your life settlement payout based on your age and your health condition. The type of policy you own (term, whole, universal life) and the policy’s death benefit amount are also considered.

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When you purchased your life insurance policy years ago, the underwriter who evaluated your application considered a variety of factors when deciding your insurability and the amount of your premium.

A life settlement company also considers these same variables when deciding a fair lump sum cash payout to you for selling your life insurance policy.

Let’s look at each of these factors.

Your age and health condition

Life expectancy is the key factor in determining a life settlement payout. Because the buyer of your life insurance policy will take over your premium payments, the longer you live, the greater the total cost will be for them.

Actuarial tables used by life insurance companies to calculate premium payments will be used to estimate your life expectancy.

For example, the average life expectancy for a male is 78 years; however, a man who reaches age 80 now has a life expectancy of 88.

Similar to a life settlement, a viatical settlement is a viable option for selling your life insurance policy if you have been diagnosed with a life-threatening illness.

The policy’s death benefit amount

Just as the interest in the lottery or other contests increases in proportion to the amount someone can win, so do life settlement payouts when you sell your life insurance policy. A policy with a $1 million face amount will be of much more interest to a life settlement company and get you a larger payout than a policy with a $100,000 face amount.

The policy’s premiums

The policy’s premiums also impact the amount of money you’ll be offered for your permanent life insurance policy. Again, using our example of the $1 million face amount, a policy with a $40,000 annual premium will be more valuable than one with a $50,000 annual premium because the buyer’s cash outlay over time will be less.

The policy’s cash value

Your $1 million policy with $225,000 in cash value will get you a higher payout than the same policy with $175,000 in cash value. Because, with most policies, the cash value can be used to pay premiums and won’t be paid out when you die, the higher the cash value, the more premiums it can pay.

Because a life settlement payout is typically greater than a policy’s cash value and less than its face amount, the higher your cash value, the higher your payout.

The policy type

There are three types of life insurance policies you can sell to a life settlement company:

  • Term life insurance
  • Whole life insurance
  • Universal life insurance

If you want to sell a term life insurance policy, you’ll first need to convert it to a whole life insurance policy, which many life insurance companies will let you do before the term policy expires. If your policy allows this, you’ll be able to convert it regardless of the current condition of your health.

You can also sell your whole life insurance policy for cash. Many whole life policyowners who no longer need or can afford their life insurance sell their whole life policy to a life settlement company.

Universal life insurance policies are also in high demand because, like whole life policies, they also build cash value.

If you would like to learn more about selling your life insurance policy and receiving a life settlement payout, get started now with our short online form to see if you may be eligible, then speak with one of our life settlement experts to begin the information gathering process.

Shortly after that (usually a matter of days once all the necessary information is received), we will get back to you with a fair offer.


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