What is a Life Settlement?
A life settlement represents a valuable option to policyowners who no longer need, want, or can afford their life insurance policy. Traditionally, policyowners would either lapse or surrender the policy back to the insurance company and receive little-to-no value. A life settlement provides a third, more valuable option to the policyowner.
A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value. There are a number of reasons why a policyowner may choose to sell his or her life insurance policy. The policyowner may no longer want to maintain the policy because of changes in their personal or business planning, the lack of a beneficiary, or because the policy has become unaffordable. Sometimes, a policy is sold to generate resources to invest in retirement or fund health care.
Who Qualifies for a Life Settlement?
Candidates for a life settlement are typically individuals over the age of 65 with a life insurance policy of $100,000 or more who have had a change in health since the policy was issued.
Life settlement companies appraise policies based on information related to the policy and the health of the insured. In most cases a brief interview can establish if the individual would qualify for a life settlement, followed by a review of recent medical and prescription records.
What is the Life Settlement Process?
The process of selling a life insurance policy isn’t that difficult. A life settlement company will collect information about the life insurance policy including the policy type, face amount, cash value (if any), and the expected future premiums. The life settlement company will also collect information about the person or persons insured under the policy such as age, health condition, and any medications the insured is taking. Based on the policy and health information, qualified policyowners receive a market value offer for the policy.
Once the seller has accepted the offer from the life settlement company, the parties complete necessary documentation to effectuate the closing of the sale, similar to a real estate sale. At the closing, the life settlement company will place the sale proceeds into an escrow account to be released when the insurance company completes the change of ownership of the policy to the new buyer. The entire process can be completed in as little as six to eight weeks.