Understanding Fair Market Value in Life Settlements

Clock March 29, 2023


30-second summary

When you make the decision to surrender your life insurance policy to the insurer for its cash surrender value, you may be receiving less money than you otherwise could. Your life insurance policy is an asset you own, and just like any other property you own, it has a fair market value.

This article will let you know how a life settlement may be able to put more money in your pocket than what your life insurance company is willing to pay you. There are investors who buy life insurance policies, often for more than a policy’s surrender value.

If you’d like to learn more, contact us today to find out how you can receive a free policy valuation (and potentially an offer to purchase the policy) reflecting your policy’s fair market value.

If you’ve owned a permanent life insurance policy for more than one year, you’ve received an annual policyowner statement containing important information, such as the amount of premiums you’ve paid that year and the policy’s cash value (the amount you can withdraw or borrow from the policy).

Another important column in the statement is “Cash Surrender Value.” This is the amount of money the life insurance company will pay you if you return the policy to them. It’s essentially “cashing in” your policy.

You can also check into alternatives that may pay you more for your policy than the insurer will. That’s where “fair market value” enters the picture.

What is fair market value?

According to the IRS, “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, with neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”

If you’ve ever done an inventory of your possessions for insurance purposes, the price you listed wasn’t your purchase price; it was the fair market value or the cost to replace the item.

For example, if you listed a rare coin you purchased many years ago for $1,000 but had it valued yesterday by a numismatist at $10,000, and he was willing to pay you that much for it, what would the fair market value be? You’re correct if you said “$10,000.” It clearly meets the IRS’ definition of fair market value.

Your life insurance policy has a fair market value

Just as there are investors who are interested in purchasing homes, there are also investors who have a keen interest in buying life insurance policies from people who prefer to receive their policy’s fair market value, rather than simply surrendering it to the insurance company.

Any tangible asset you own has a fair market value, including your life insurance policy. Determining its value can be quickly done by a life settlement company that will provide you with life settlement quotes, which will be the policy’s fair market value.

Getting life settlement quotes

When you’ve bought insurance in the past, whether home or car insurance, health insurance, or life insurance, you may have worked with an insurance professional that presented you with several options for different policies. Life settlement quotes work the same way.

When you’re selling your life insurance policy, a life settlement company determines the fair market value of your policy by gathering policy and health information, and determining how long the policy will likely remain in force before paying a benefit to the new owner. If the sum of the cost to maintain the policy plus the expected return on investment for the new owner is lower than the policy benefit, the difference in those two values is what the life settlement company can offer as the purchase price for the policy.

There are several advantages to working with a life settlement company:

First, you have options. Your life insurance policy is a valuable asset. Getting life settlement quotes instead of accepting the insurer’s surrender value at first glance provides you with multiple options to receive a fair price for your policy.

Second, you will receive the most money possible for your policy. A licensed life settlement company’s offer is often the best option. Why settle for less?

Explore a life settlement with Lighthouse Life

If you want to learn more about fair market value and life settlements, contact us, and one of our experienced life settlement experts will spend time speaking with you about your unique situation and needs. We’ll help you receive the most cash for your life insurance policy as quickly as possible.


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