Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(6 minute read)
As you get older, your life settlement policy might end up costing you more money than you’d anticipated. Sometimes unforeseen expenses pop up and you need to redirect your finances. From large medical expenses to a costly divorce, selling a life insurance policy can give you the ability to redirect your money to where it’s most needed. This is an increasingly common practice; according to the Life Insurance Settlement Association (LISA), 92% of life insurance policies terminate before receiving a death benefit.
If you’re considering selling your life insurance policy, it can be difficult to decide which company you should sell your life insurance to. There is a lot to consider, and you want to ensure that you partner with a life settlement company you can trust. Let’s discuss the best practices for choosing a company to handle selling your life insurance policy via a life settlement.
What is Life Settlement?
A life settlement is when the insurance policy owner sells their policy through third-party life settlement companies or a life settlement broker to receive cash for selling their policy.
After the life settlement process is complete, the life settlement company becomes the new owner and/or beneficiary of the life insurance policy, pays all future premiums, and collects all or some of the entire death benefit when the insured dies. The amount of the death benefit often exceeds the total cost of the purchase price and the amount of the premiums paid by the life settlement provider.
Why Do People Sell Their Life Insurance?
People sell their life insurance policies for a variety of reasons. Policy holders may choose to sell because they:
- have children who are now adults and no longer rely on them financially
- realize that paying the premiums is no longer worth the benefit
- have high amounts of medical debt they want to pay off
- want to create an additional retirement fund
- feel like gifting inheritance money to their children and grandchildren to witness the new house they might buy or vacation they may go on with the funds
- went through a divorce and no longer have dependents
- have gone through a change of financial circumstances and want to stop paying the premiums
- now have enough assets and savings to self-insure instead of relying on life insurance
- want to sell the policy for estate planning purposes
If one of these scenarios is something you can relate to, it may be time to consider the pros and cons of selling your life insurance policy for your individual circumstances. One easy place to start is by using the life settlement qualification calculator we have created at Life Settlement Advisors. All of the best life insurance companies require the seller to go through application procedures, but our life settlement calculator can give you a good idea of where you stand before starting that process.
Once you’ve gone through our selling life insurance policy calculator and determined your policy has value, the next step would be to find an experienced life settlement company. While a “best life settlement companies” Google search may seem like the best place to start, there are still many other things you should consider before choosing a life settlement provider.
What is a Life Settlement Provider?
Life settlement providers are companies that purchase life insurance policies from policy holders. Some life settlement providers purchase the policies to keep as an investment for their own use, but most providers purchase the policies on behalf of their investors or other financial institutions.
So, how do you choose a life settlement provider? Simply picking a provider from a list of companies that buy life insurance policies is probably not the best way to approach this. Before you choose a company to work with, make sure you do your research. We’ve compiled a list for your consideration to give you a better idea of what the best life settlement companies have to offer:
An excellent life settlement company will happily walk you through the process of selling your life insurance policy in great detail. Some of the better life settlement providers offer resources on their website or have an extensive blog that contemplates any questions you may have about the process. When you contact them, they should be able to satisfactorily answer any question you may have about life settlement. They may even offer regular newsletters that keep you up-to-date on the latest in the life settlement process, allowing you to time your decision at the perfect moment in your future.
This is a field where expertise comes with time. If a life settlement provider doesn’t mention how long they have been in the life settlement industry, there’s a good chance they haven’t been doing it long. Look at a company’s “About Us” section on their website, such as ours at Life Settlement Advisors. We have more than 40 years of combined experience, which we display to let our clients know they are in trusted hands when selling their life insurance policy.
Have you heard good things about a particular life settlement company? Or perhaps a friend of yours has mentioned the wonderful experience they had with a certain provider? A positive reputation will take any company far, especially in the life settlement business.
Beyond the reputation amongst consumers, there are also many regulations that control the life settlement industry. This makes it easy to find complaints if a company has not provided good service. If you’re seeing complaints about a company on the Better Business Bureau or the National Association of Insurance Commissioners, it’s probably not one you want to go with. Conversely, a good life settlement company might display success stories and testimonials on their website, as happy clients are generally glad to share their experience.
Efficient Quoting and Sales Process
The actual process of selling your life insurance policy can be rather complicated, but a competent life settlement provider will make it feel easy. When you consult with a life settlement company, they should be able to walk you through what the process looks like, and you should have a clear understanding of what is expected of you. For example, you will have to put in some work applying, providing supporting documentation, and reviewing the final offer. The life settlement provider should handle everything else for you. On the company’s end of things, they will have to:
- consult with you and explain the life settlement process
- review your application and supporting documentation
- send your information to a life expectancy underwriter
- analyze the underwriter’s report
- find a buyer through an auction or other means
- go over the final offer with you so you can decide whether or not to accept it
- compile closing documents for the final settlement
- communicate with your life insurance company the change in beneficiaries
- monitor the distribution of sale proceeds
- answer any remaining questions you may have after the process
Life settlement companies have many other duties for ensuring a smooth settlement, but this is a general idea of their responsibilities. Keep these in mind during your consultation so you can evaluate any insufficiencies in their process.
Transparency and Responsiveness
As we stated above, the life settlement industry is heavily regulated. These regulations are helpful for many reasons, such as protecting sellers from accepting a bad settlement offer. Many of these regulations revolve around disclosures and transparency so that the seller understands all of their options. They also protect the buyer to ensure the seller is not selling their life insurance policy illegally. With all of these enforcement factors in place, at no point in the life settlement process should you feel in the dark or out of the loop. If you are asking questions and not getting fast, intelligent, and straightforward responses, then you might want to consider a different life settlement provider.
You should not be charged for a life settlement consultation. Similar to how a realtor doesn’t get paid until a house sells, a life settlement provider doesn’t get paid until you accept an offer on your life insurance policy. If a company says the initial consultation isn’t free or attempts to charge for your first appointment, you should be suspicious and find another provider.
If you take the time to evaluate these factors before choosing a life settlement provider, you can move forward feeling confident about your choice. Once you’ve settled on a company, the next step is to sell your policy. Let’s look at the process and what a payout might look like for your situation.
How Do You Sell a Life Settlement?
It should be noted that not all policyholders are eligible for life settlement investments. Candidates for life settlements typically are 65 or older or have one or more underlying health issues. Our life settlement calculator we mentioned above is the perfect place to start making these determinations about your life insurance policy. Calculating the exact payout you get depends on several issues, including your age and health. You also can choose to only sell a portion of your policy and leave some death benefit for your original beneficiaries. Let’s explore some of the common questions that come with figuring out that amount.
What Percentage Do You Get When You Sell Your Life Insurance?
You have probably asked at some point in this process, “how much is a life settlement worth?” As we’ve stated, the worth is based on numerous factors like age and health, but sellers can expect to receive around 20% to 25% of their policy’s value, sometimes more and sometimes less. For example, one of Life Settlement Advisors client success stories is about a widow who received a $150,000 payout for a $750,000 Universal Life Policy. That payout amount was 20% of her life insurance policy value.
Can I Sell My Life Insurance Policy to Life Settlement Advisors?
We would love to be your choice for your life settlement. If you still have questions about the process of choosing a life settlement provider, we are glad to give you all the answers you seek. Our team can also provide you with multiple resources for you to make the best decision for you and your family. A life insurance policy is a valuable asset, and we want to help you handle this asset in the best way possible.
Maybe instead you are ready to go and convinced you need to sell your life insurance policy. If so, please contact us to get the process started. At Life Settlement Advisors, we know the life settlement process inside and out, and we use that wisdom to help our clients get the best offers for their life insurance policies.
Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors