When considering a life settlement, you have the opportunity to sell your unwanted or unneeded life insurance policy for a lump sum cash payment worth more than your policy’s surrender value.
If you’re thinking about cashing out your life insurance and using that money to meet other financial needs, you’ll need to know exactly what steps are involved. You’ll also need to understand the valuation procedure, the general timeline, and the potential post-settlement outcome.
As you consider this big decision, it’s also helpful to know that working with an experienced broker can improve the life settlement process.
What Is a Life Settlement?
Selling a life insurance policy for a cash payout is called a life settlement.
There are many different reasons why you might consider selling a life insurance policy. If your beneficiaries are now fully self-sufficient, you may no longer need the policy. You may also find the premiums are too high, or you have a specific plan in mind for the lump-sum payout.
It’s a highly personal issue, and only you can really know whether a life settlement is right for you. Before you begin the process, it’s a good idea to carefully consider your financial needs and options. It’s also a good idea to consult an experienced broker.
The life settlement process can be complicated, which is why many individuals choose to work with an experienced life settlement broker. The right broker, such as Life Settlement Advisors, helps policyholders and their families secure the best possible settlement offer.
Who Qualifies for a Life Settlement?
Not all life insurance policyholders qualify for a life settlement. Whether you’re eligible depends on your age, your policy type and size, and your overall health.
Typically, you must be at least 65 years of age to qualify for a life settlement. In some cases, younger people do qualify if they have significant health issues. Individuals with a shorter life expectancy often qualify for life settlements, even if they are younger than the typical age. Our Life Settlement Eligibility Guide can provide more detailed information.
During the pre-qualifying period, individuals must contact a life settlement company and present documentation to help determine their eligibility. This includes:
- A complete copy of the policy
- Recent annual policy statement
- A completed questionnaire that consists of specific health information
If you’re considering a life settlement, start by organizing your documents. Once you have the documentation, the life settlement process will likely take approximately three months.
Step‑by‑Step Life Settlement Process
The life settlement process can be broken down into six simple steps.
Step One: Eligibility Review
Once you’ve decided you’re interested in a life settlement, you’ll need to contact a dedicated life settlement company to check your eligibility. Prepare for the initial discussion by gathering all the relevant information and documents. Double-check your policy is in good standing and has not lapsed, either.
Step Two: Policy Valuation
Next, the life settlement company will assess your life insurance policy. They will likely review your medical records, along with your policies, including your premiums, cash value, and expected death benefit. Those factors help the company assess the policy’s value.
Step Three: Offer and Acceptance
Once the company has reviewed and valued your policy, they will make you an offer, typically a lump sum, in return for taking over your life insurance policy.
A good broker, like Life Settlement Advisors, will do some comparison shopping for you to make sure you’re getting the best possible deal. Look for a broker who is transparent and offers regular updates on the process, so that you always know what’s happening at every stage.
Step Four: Transfer of Ownership
Once you accept the offer, you’ll sign a formal agreement transferring ownership of the policy to the buyer. The agreement legally designates the buyer as the policy beneficiary.
Step Five: Payment
At this stage, the buyer places the agreed-upon payment in an escrow account. The funds remain in the escrow account until the insurance policy transfer is finalized, which can take two to three weeks.
Step Six: Post-Settlement
After you’ve agreed to the settlement and finalized the transfer, the escrow agent will disburse your funds. The buyer assumes responsibility for all future premium payments and will receive the full death benefit upon the maturity of the policy.
Benefits and Considerations of Life Settlements
Depending on your situation, life settlements can offer significant benefits.
A life settlement means no more monthly premiums, providing some flexibility to your budget. If you have new expenses or are struggling to make your monthly payments, this can be a very positive change.
Life settlements also provide a lump-sum payment you can put toward your needs. In fact, the life settlement average payout is considerably higher than the surrender value (the amount you would receive from the insurance company upon cancellation) would be.
What Happens After a Life Settlement Closes?
After closing your life settlement, you’ll receive a lump-sum payment as the policy formally transfers to the buyer. They will then take responsibility for the policy’s premiums and become the policy’s legal beneficiary.
Note that your life insurance settlement may be taxable, either in part or in full, depending on the terms of your policy and agreement.
Choosing a Trusted Life Settlement Broker
If you’re interested in a life settlement, choose a broker you can trust to find you the best possible offer, taking the time to act as a mediator between you and the relevant life settlement firms. That level of dedication is how life settlement brokers get you more money.
At Life Settlement Advisors, we look out for your interests and are here to guide you through the settlement process.
Life Settlement Advisors has more than 26 years of industry experience and a track record of providing every client with the information and insights they need. Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
