You’ve paid into your life insurance policy for years. But now, you might be asking — is it still serving its purpose? Maybe the premiums are eating into your savings. Maybe the original reason you bought the policy no longer applies. Or perhaps you simply need more financial flexibility now than your beneficiaries may need in the future.
If any of that sounds familiar, you’re not alone. Many seniors find themselves in a similar situation. The good news is that you might have another option: a life settlement.
A life settlement is the sale of a life insurance policy to a third-party buyer for a cash amount higher than the policy’s surrender value. After the sale, the buyer takes over the premiums and ultimately receives the death benefit.
This guide walks you through the life settlement process step by step (from eligibility to closing) so you know what to expect, what documents you’ll need, and how to sell a life insurance policy with confidence. Understanding each step can help ensure a smooth transaction, while consulting an experienced professional can provide reassurance and support throughout the process.
STEP 1: CONFIRM BASIC ELIGIBILITY
The first step in the life settlement process is to determine whether you or a loved one meets the general eligibility requirements.
Most life settlement candidates are at least 75 years old, though individuals in their 60s or early 70s may qualify if they have multiple health conditions.
The policyholder’s life expectancy also plays a key role in eligibility, as shorter life expectancies typically result in higher potential payouts and greater buyer interest.
The ideal policy types are:
- Universal life
- Whole life
- Indexed universal life
- Joint life
- Convertible term
Permanent policies, such as universal, indexed and whole life, can build value over time or extend coverage well into later years. Term life policies typically expire after a set period. Still, some may qualify if they include a conversion feature that allows the policyholder to switch to permanent coverage without undergoing a new medical exam. This means you can access the benefits of a permanent policy even if your health has changed, provided the conversion occurs within the allowed timeframe.
Note: These are general guidelines, not guarantees. Because every policy and health profile is unique, this stage serves as a screening, not a final determination.
STEP 2: GATHER KEY POLICY INFORMATION
Once you pass the initial screening, the next step is providing details about your policy and ownership structure.
Policy Details Commonly Requested
To move forward, you’ll need to share the carrier, policy, face amount, premium schedule, type of policy and any riders. If available, you’ll also want to include an in-force illustration showing how long the coverage lasts under the current payment terms.
Ownership and Beneficiary Info
It’s important to clarify who owns the policy, who is insured and if there are any trusts, liens or collateral assignments attached. If a trust owns the policy, you may need to provide a copy of the trust document or other relevant documentation.
STEP 3: AUTHORIZATION AND MEDICAL RECORD REVIEW (UNDERWRITING)
This stage is often referred to as life settlement underwriting. Buyers need a clear picture of the insured’s health history because it directly affects the policy’s value.
You’ll sign standard authorizations that allow underwriters to request and review your medical records. These records include your:
- General health history
- Current medications
- Diagnoses
- Recent physician visits
All records are kept confidential and used solely for settlement review. This is a standard part of the process and helps with estimating your life expectancy, which plays a significant role in pricing.
STEP 4: POLICY VERIFICATION WITH THE CARRIER
At this stage, the broker or buyer will contact the insurance company directly to verify several key policy facts. These include:
- Whether the policy is still active
- The current premium status
- Ownership and beneficiary records
- Whether the contestability period has expired
- If any conversions are applicable (for term policies)
This verification step protects both the buyer and the seller. It ensures that all information is accurate and that there are no surprises later that could delay or cancel the transaction.
STEP 5: VALUATION AND OFFERS
Now comes one of the most important stages: evaluating the policy and receiving offers.
What Drives Value
Several factors influence the valuation of a life settlement. These include:
- The insured’s life expectancy
- The type of policy
- The premium payments required to keep the policy in force
- Current market demand
Each buyer may use slightly different models to evaluate the policy, which is why offers can vary.
Reviewing Offers
Once buyers have reviewed the file, they may submit their offers. You or your advisor should carefully review the net proceeds after fees and request a detailed breakdown in plain language. If a buyer updates their life expectancy estimate or new information becomes available, an offer may be revised.
It’s always okay to ask questions before moving forward.
STEP 6: ACCEPT AN OFFER AND MOVE TOWARD CLOSING
Accepting an offer means you agree to the buyer’s terms, including the purchase price and any conditions of the sale. If you choose to accept an offer, this triggers the official start of the life settlement closing process.
You’ll receive a set of documents to review and sign, which may include:
- A purchase agreement outlining the terms of the sale
- Change of ownership and beneficiary forms for the policy
- Escrow instructions (if applicable)
This is a good time to ask additional questions, confirm the life settlement timeline and review the documents with a trusted advisor or attorney. You should understand all obligations before signing.
STEP 7: CLOSING AND PAYMENT OF PROCEEDS
After you complete and return the signed documents, the buyer submits them to the insurance company for processing.
Once the insurance carrier confirms the ownership and beneficiary changes, funds are released from escrow. Most sellers prefer to receive payment by wire transfer or check.
The life settlement process usually takes at least 90 days from start to finish, but delays can occur if documents are missing or if the insurance company takes longer to process the ownership change.
STEP 8: AFTER THE SALE
Once the policy changes hands, you no longer pay premiums or control the policy. The buyer becomes the new owner and beneficiary, assuming responsibility for all future premium payments. From time to time, you may be asked to confirm contact information or medical status. Keep in mind, you may need to pay taxes on the life settlement proceeds.
COMMON QUESTIONS AND POTENTIAL SPEED BUMPS
While most cases move smoothly, a few common issues can delay or disrupt the process:
- Missing paperwork or outdated documents
- Complications with trust or estate ownership
- Premiums not paid or policy lapsing during review
- Slow turnaround on medical records
- Discomfort with sharing personal health information
If any of these concerns apply to your situation, talk to the advisor or broker managing your case. Most of these hurdles can be addressed early with some preparation.
LEARN MORE
A life settlement is a transparent, step-by-step process. Knowing what’s ahead helps you stay in control, avoid surprises and achieve the best possible outcome.
If you’re wondering whether your policy qualifies, start by gathering your documents and consulting a trusted professional. Ask for explanations about any issues you don’t understand. Take your time. And if it helps, include your CPA, financial advisor or estate planner in the conversation.
Contact Life Settlement Advisors today to find out if your life insurance policy qualifies for a life settlement or to request an estimate. You might be sitting on a highly valuable asset.
