As life happens and your financial circumstances change, so does the usefulness of your life insurance policy. A life insurance settlement can unlock your policy’s value and let you put it to use today.
But who qualifies for a life settlement? Insurance companies follow strict rules that determine whether a policy is eligible for sale, including when you can start the process as the policyholder.
In this guide, we’ll go over life settlement eligibility age requirements and other factors that may qualify you for a settlement. Use it to consider your options and make the best decision for yourself and your loved ones.
Age Requirements for Life Settlement Eligibility
In most cases, policyholders must be 65 or older to qualify for a settlement. This industry norm developed as a way for buyers, also known as life settlement providers, to reduce their financial risk.
For these settlement providers, purchasing a life insurance policy is an investment. They agree to take on future premium payments in exchange for the death benefit. The younger the applicant, the more years of premiums they usually have ahead of them. More premiums reduce a policy’s profit potential, so it’s rare to receive a settlement offer if you’re under 65.
Providers may make exceptions for younger policyholders with serious health conditions. To potentially qualify, your condition would need to significantly impact your lifespan.
Health Status and Life Expectancy Considerations
When life insurance settlement providers consider making an offer to buy your policy, they review how your health has changed since you took out the policy.
Insurers determine your premiums based on your health status and age. Most policies are designed so that premiums stay the same over time. The assumption is that the underwriting process accurately estimates your life expectancy, but nothing health-related is a sure thing. Many people develop health conditions that affect their lifespan, which in turn affects the value of their policy.
Because a provider’s goal is a profitable investment, they make offers when the policyholder has a newly developed chronic illness, serious diagnosis, or overall decline in health. The expectation is that the medical issue has affected your life expectancy enough to make your policy a profitable investment.
You may qualify for a life settlement if you’re 65 or older and have health issues. These issues do not need to be terminal, despite what you may have heard.
If you are younger than 65 and have a terminal illness, you may be eligible for a viatical settlement. This unique settlement type allows seriously ill policyholders to access the value of their life insurance. Whether you have mounting medical bills or an unfinished bucket list, having that money in your pocket can be a relief.
Eligible Life Insurance Policy Types and Face Value Minimums
Other qualifying factors relate to the policy itself, rather than your health and life expectancy. These factors matter to settlement providers, who are essentially investors seeking to maximize their profit potential.
Whole, Universal, and Convertible Term Life Insurance
A sellable policy must have cash value, which means it must qualify as permanent life insurance. Whole and universal life policies meet this criterion, though their value in a sale may differ.
For example, the cash value of a whole life policy grows at a fixed rate. That stable growth makes the policy easier for potential buyers to assess, which may mean a faster settlement but can limit profitability for buyers. Universal life policies grow based on market performance, which may increase profit potential.
Term life policies do not build cash value, so you’ll only be able to sell your term insurance if you can convert it to a permanent policy. Not all converted policies will do well in sale, so it’s vital to consult with a life settlement broker to understand your options before making this decision.
Policy Age and Payout Restrictions
Regardless of type, a settlement is usually only possible if the death benefit is $100,000 or higher and the policy has been active for 25 months or more. Select states require a higher minimum policy age for life settlement eligibility, up to five years in some cases. Consult with a life settlement broker to discuss the rules in your area.
Policy ownership is less tightly regulated. In most cases, any entity can own a policy and remain eligible for settlement. The option is worth exploring whether the owner of your policy is an individual, corporation, trust, or another for-profit or non-profit organization.
Premium Structure and Financial Policy Factors
Settlement providers focus heavily on a policy’s premiums because their profit comes from the death benefit, and each premium they pay cuts into those profits. For example, if a provider purchases Alice’s $250,000 policy for $50,000, they stand to receive a maximum of $200,000 upon her passing.
Suppose Alice lives for 10 years after settling the policy. If her premium payments total $250 a month, the provider would pay $30,000 before receiving the death benefit. If those premiums were $400 a month, the provider’s costs would increase to $48,000.
In general, expected premium payments should not exceed 5% of the policy’s face value. Providers may also consider other financial factors when deciding to purchase your policy, such as its cash surrender value or any outstanding loans against it. Investment performance may also be a consideration if it affects your policy’s cash value.
Suppose you have an indexed universal life policy with a cash value linked to the S&P 500. This index reflects the performance of high-value companies overall, meaning you might receive a lower offer during a market downturn. If market experts predict an upturn, you might receive more.
How to Determine if a Life Settlement Is Worth Exploring
A life insurance settlement can get you more from your policy if you qualify. At Life Settlement Advisors, we’re committed to guiding sellers through the process and helping you secure the best possible offer for your policy.
The first step is to check your eligibility. Download our qualification questionnaire to review with your financial advisor, or use our online qualification calculator to check your eligibility. We’re here to help with the rest and answer your questions. Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
