The face value of life insurance policies is steadily trending upward. Just 10 years ago, the average purchase value was $160,000 — it’s now over $200,000.
But what happens if you no longer need some or all of your policy? Maybe you’d prefer to reinvest that money somewhere else, or perhaps you have a large-scale home repair to tackle. Or, you might want to relax in comfort during your retirement. You could see the world, try new hobbies or simply enjoy your life.
Of course, this raises the question: How much can you get for your life insurance policy? Even with policies of $200,000, $500,000 or $1 million, the amount you receive is often a fraction of what your policy is worth.
Here’s how life settlement brokers get you more money for your policy.
LIFE SETTLEMENT VS. CASH SURRENDER: WHAT’S THE DIFFERENCE?
If you no longer need some (or all) of your policy, you have two options: Cash surrender or life settlement.
Cash Surrender
Choosing cash surrender is the same as canceling your policy. The process is straightforward: You contact your insurance company and instruct them to cancel your coverage. If you have a permanent life insurance policy, such as a whole or universal life, you receive the cash surrender value. This value is equivalent to the premiums you’ve paid plus any interest earned.
While this helps you recover some of the money you’ve paid in, it’s nowhere near the face value of your policy. For example, if you have a $500,000 whole life policy and you’ve been paying $50 per month in premiums for 30 years, surrendering your policy gets you $18,000 plus any interest — a far cry from $500,000. In addition, your insurance provider may charge service fees for canceling your policy, further impacting your payout. Plus, if accrued interest results in you receiving more than you paid in premiums, you’ll owe income tax on this overage.
Life Settlement
A life insurance settlement is the legal sale of an existing life insurance policy to a third party for a cash sum. This cash sum is significantly larger than your surrender value because, unlike your insurance company, these buyers are taking over your policy and its associated benefits.
Consider the $500,000 policy mentioned above. Instead of surrendering it for $18,000 (less fees and taxes), you find a third party willing to purchase the policy. The condition of this purchase is that the third party becomes the owner and beneficiary of your policy. This means the policy remains in force — the difference is that when you pass away, the $500,000 face value goes to the buyer, not your original beneficiary.
Because the buyer stands to make half a million dollars, they’re willing to pay more for your policy than the surrender value. Depending on your current health, policy value and other factors, you could end up with a significant payout. This was the case for one of our clients who had terminal cancer. With debts to pay and plans to enjoy her remaining years, she chose to sell her $1 million policy. With the help of our team, she sold $900,000 of her $1 million policy for $590,000.
HOW LIFE SETTLEMENT BROKERS GET YOU MORE MONEY
Life insurance settlement brokers help streamline the process of selling your policy. Brokers are expert intermediaries. They have both insurance policy and financial market expertise that helps them pinpoint interested buyers and encourage competition among multiple buyers. This helps you get more for your policy and feel confident that proper sales and purchase processes are followed.
LIFE SETTLEMENT BROKER ADVANTAGES
While it’s possible to sell your policy yourself, this can be time-consuming and stressful. For example, if you’re dealing with unexpected debts or handling new health challenges, the last thing you need is more stress. Working with an experienced broker can simplify the process and get you more for your policy.
Key benefits of life settlement brokers include:
Identifying Your Options
Your broker can explore different settlement options, such as selling your entire policy for cash or selling a portion and keeping a smaller death benefit. At Life Settlement Advisors, we pride ourselves on connecting with our clients so we can better understand their needs and ensure they get the best payouts.
Handling the Paperwork
Brokers also handle all necessary financial and legal paperwork. This ensures that sales are properly registered and terms are clearly communicated. Since some (or all) of your death benefit will go to a new beneficiary, you don’t want any mistakes.
Connecting With Prospective Buyers
Experienced brokers have connections with multiple buyers. This helps them find the prospective purchasers and encourages competition, which in turn helps you get more for your policy. Good brokers can also price your policy internally, allowing them to pinpoint the true market value. And since brokers are paid a percentage of the gross offer, they’re incentivized to get you the best offer possible.
Finding Fair Market Value
Depending on market conditions and trends, your potential payout changes. Brokers help you find fair market value for your policy and can make recommendations based on changing conditions. For example, if markets are experiencing a short-term downturn, your broker may advise waiting to sell until average purchase prices rebound.
Navigating Compliance and Reporting
As noted above, you owe tax on gains that exceed your total premium payments — this is true for life settlements as well as cash surrenders. Brokers provide complete documentation of your policy sale for your tax records and ensure that settlements meet state and federal standards for transparency and accuracy.
Providing Personalized Recommendations
Why choose a life settlement broker? Because they know every client is different, and every settlement is unique. As a result, your sale is personal — it’s not just about money. It’s about ensuring you get the best value for your policy and making sure you leave yourself enough coverage for the future. Brokers can provide personalized recommendations based on both your current finances and retirement goals.
CONNECT WITH AN EXPERIENCED LIFE SETTLEMENT BROKER TODAY
Working with a life settlement broker can help you get more for your policy and set you up for long-term financial success.
At Life Settlement Advisors, we provide expert guidance and personalized service to help maximize the value of your life insurance policy. Considering a life settlement? Contact us today and see how we can help.