How Much Is a Life Settlement Worth?

Did you know you can sell all or a portion of a life insurance policy, even term insurance?

(3 minute read)

Deciding you no longer want or need your life insurance policy is a big decision. Selling your life insurance policy means that your beneficiaries will no longer receive the death benefit when you die. That being said, if your current policy premiums are cost prohibitive or the policy is no longer serving its purpose, selling it in a life settlement can be quite a lucrative decision, especially compared to surrendering the policy back to the insurance company. 

How Do Life Insurance Settlements Work?

Typically, a life settlement transaction will be an option for those 65 years and older with a policy worth at least $100,000 in death benefits. This is not always the case, but it’s a good place of reference for you to compare to. A typical life settlement payout will be around 20% of your policy size, but the range could be anywhere from 10% to 25%+. For example, if you have a policy valued at $300,000 and you choose to sell it in a life settlement, your final return will be around $60,000. 

The goal of a life insurance settlement is to get you more than the policy’s specific cash surrender value. Some of the factors that weigh on how much the payout will include age, health, life expectancy, annual premiums, and the specific details of your policy. For the most accurate number, contact a life settlement advisor, or use our free life settlement calculator to get a rough estimate. 

Are Life Settlements Tax Free?

In short, no, life settlements are not tax free. They are taxable to the extent that you turn a profit upon selling the policy. Life settlement proceeds greater than the amount of premiums you have paid are treated. If you’re concerned about a life settlement increasing your tax liability, you should talk with a financial advisor about how to offset the gains through other investments and tax strategies. 

How Do You Determine the Cash Value of Life Insurance?

It is helpful to understand the difference between a settlement and surrender when it comes to the cash value of a policy. A life insurance surrender is paid by the insurance company based on the original terms of your policy. In some circumstances, the surrender value of the policy may be lower than the cash value, depending on how the agreement is structured. 

A life settlement is when your life insurance policy is sold to investors similar to stocks or bonds. These investors keep paying the premium and ultimately collect the death benefit in return. This means that investors are willing to pay more than the cash surrender value that the life insurer will pay you to cancel the policy.

It is important to note that this transaction must be facilitated by a life settlement company. When considering selling your life insurance policy, working with a broker is recommended.

Your cash value will increase based on what type of permanent life insurance policy you buy. Life insurance payments typically fall into one of three categories: insurance company operating costs, premium payments, and cash value. This means that the more you pay into your premium, and the more interest that accrues, the more your cash value will increase. 

Life Settlement vs Viatical Settlement

A viatical settlement is the sale of a life insurance policy held by a person who is terminally ill. Generally, a viatical settlement is going to be more complex than a life settlement, some of that complexity could lead to a very specific benefit. It would be that  A viatical settlement will not need to be reported on your taxes either, whereas a life settlement is required to be reported on your taxes. 

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.

Leo LaGrotte
Life Settlement Advisors

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors
Leo LaGrotte
At Life Settlement Advisors, we strive to be a voice of confidence and assurance for our clients. Our goal is to educate you about the life settlement process so you can make an educated decision about whether it is right for you.

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