How Does a Life Settlement Calculator Work?

(3 Minute Read)

Did you know that you can sell all or a portion of a life insurance policy, even term insurance? That’s what the life settlement market is all about, and it can be a little confusing for newcomers. But whether you’re a senior with an unnecessary life insurance policy or a financial advisor helping a client navigate this industry, there are tools available to help you easily get a sense for whether or not your policy might be a good fit for a life settlement. A life settlement calculator is perhaps the most common and simplest of these tools, and it’s a good place for you to start if you are considering selling your life insurance policy—but how does a life settlement calculator work?

Using a Life Settlement Calculator

If you’ve never used a life settlement calculator before, it might sound complex—but it is actually a very simple tool. Most of these calculators, like the one we feature on the Life Settlement Advisors website, ask several questions about a life insurance policy and the person insured by the policy. When using a good calculator, you shouldn’t have to enter specific data points; ours, for example, provides multiple choice responses to make it easier to provide us with the information we need to evaluate your case.

Understanding the Major Factors That Determine How Much Your Life Settlement is Worth

When you do use a life settlement calculator, what kind of information will you need to have available? It’s important to be ready with information about the following factors that a calculator will use to determine if your specific case has potential in the life settlement market:

  • Type of Policy: What type of insurance policy do you have? Permanent policies work best, but term policies most often can be converted to permanent policies in order to qualify for a life settlement.
  • Age: Generally speaking, policy holders in their mid 70’s and older are the best candidates for a life settlement. An exception to this guideline would be a male or female in their 60’s to early 70’s that has multiple chronic medical conditions and a significant health change has taken place since the policy was issued
  • Death Benefit: A calculator will ask about the death benefit on your policy. We typically find that policies worth at least $100,000 in death benefits will work best.
  • Annual Premium: Another important factor in determining a policy’s viability is its annual premium. The lower your annual premium in relation to a policy’s death benefit, the more likely an investor will be interested in a settlement involving your policy.
  • Cash Value: If your policy has built up any cash value, it can impact the value in the life settlement market.
  • Outstanding Loans: Any outstanding loans existing on the policy could complicate matters. For this reason, if the policy is sold, Investors will want loans paid off at closing.

These are the most significant factors a life settlement calculator will use to determine your policy’s viability in a life settlement, but they aren’t the only factors. Our qualification calculator, for example, also asks for the insured’s sex, as well as their health status. As a calculator evaluates your answers to questions about all of these factors, it will be a balance of all of these factors, not just one or two, that in total paint a picture of whether or not your policy may qualify for a life settlement.

The First Step, But Not the Last

Life settlement calculators are very helpful for advisors or for seniors who are exploring life settlements as an option for their unwanted or unneeded life insurance policies, but they can’t replace the work of experienced life settlement professionals. After you complete our life settlement calculator to see if you might be a good fit for the market, I encourage you to reach out and contact us. We will help you through the formal application process and answer any questions you have along the way. The key is this: As you begin exploring a life settlement for your policy, you don’t have to go it alone. Using a calculator is the first step towards selling your policy, and our experts are here to help walk you through the rest of the steps you’ll take along the way.

Case Study: William and Mary purchased a joint survivorship life insurance policy many years ago to pay federal estate taxes. Due to the recent tax changes, William and Mary no longer need this policy. William passed away last year. Mary sold their policy and used the proceeds to move close to her grandchildren, pay off a few medical bills and setup a college fund for their grandchild.

Leo LaGrotte
Life Settlement Advisors

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