Just 34% of Americans saving for retirement feel like they’re on track for success, according to data from the Federal Reserve. Moreover, 55% reported being uncomfortable managing their financial investments.
Life settlements offer a path to improved financial security — if you can maximize life insurance settlement value. Here’s how.
DON’T LEAVE MONEY ON THE TABLE
Many seniors don’t realize that their life insurance policy is a valuable financial asset. They’re only familiar with two options: using or surrendering their policy. The first happens when policyholders die — the value of the policy plus any interest on premiums is paid to the beneficiary. The second is when policyholders cancel their policy and take what’s known as the surrender value, which is far less than the face value.
But there’s a third, more profitable option: Life settlement. In this case, a third party buys your policy. They pay you a lump sum and become the beneficiary of some (or all) of the death benefit, depending on the terms of your agreement. These settlement offers can vary widely from buyer to buyer and policy to policy, so a smart settlement approach is critical to make sure you’re not leaving money on the table.
KNOW WHAT DRIVES YOUR POLICY’S VALUE
First, you need to understand what drives the value of your policy. This is because face value isn’t the only measure of worth — both policy type and personal factors can impact your potential payout.
For example, buyers often prefer universal and whole life policies. Universal policies can earn buyers higher returns over time, and premiums may be lower than whole life policies. Since buyers are taking over your policy premiums, this is a critical consideration. Whole life policies, meanwhile, are valuable because they offer predictability and stability for buyers.
Your age and health also play a role in settlement value. Put simply, the older you are, the more you are likely to get for your policy since buyers will be able to claim the benefit sooner. Poor or declining health has a similar effect.
In addition, buyers typically prefer to purchase policies with face values of $100,000 or more.
WHY A BROKER IS YOUR BEST FRIEND IN THE LIFE SETTLEMENT PROCESS
Getting the best value for your policy means creating a competitive bidding environment. But this is difficult to do on your own — unless you have a background in finance, it’s challenging to navigate the insurance settlement market.
A knowledgeable, reputable broker is your best friend in this process. These financial experts help create a competitive bidding process that leads to higher offers and better payouts for your policy.
Let’s say you have a policy worth $200,000. You find a buyer willing to pay $10,000, which is better than your surrender value. Now, imagine you worked with a broker. Using their market connections and expertise, they find five prospective buyers, each willing to purchase your policy and pay more than the $10,000 you were initially offered. Clearly, working with a broker sets you up to get the most money for your life insurance policy.
PREPARE YOUR POLICY TO LOOK ITS BEST
Before starting the life settlement process, it’s important to make sure your policy is in tip-top shape. This includes:
- Keeping your premiums up to date. First on our list of selling life insurance for cash tips is making sure your premiums are up to date. If you let your policy lapse, buyers won’t be interested in making bids.
- Having clear and complete medical records on hand. Medical conditions can increase life settlement payouts. Make sure you have records on hand that are clear, complete and up to date.
- Work with your financial advisor to understand potential impacts: Depending on the amount of interest earned (if any) and the total value of your payout, there may be tax or estate impacts. Work with your financial advisor to prepare for the impact before selling your policy.
- Check for any ownership or beneficiary changes. Make sure ownership and beneficiary data are accurate before starting the process. Unexpected changes can delay the settlement or derail negotiations.
AVOID COMMON MISTAKES THAT COST YOU MONEY
Along with life settlement selling tips, it’s also worth mentioning potential mistakes that can cost you money. Here are four of the most common.
1. Working with a direct buyer (also known as a Provider): A direct buyer does not shop the policy, and they will not be transparent with you. Since they’re buying your policy directly, their business model is designed to pay you the least amount of money.
2. Accepting the first offer: The first offer is often the lowest. Waiting gives time for other buyers to outbid initial offers and may encourage the first prospective purchaser to increase their offer.
3. Not asking for a detailed breakdown: Fees and other costs can reduce your total payout. Always ask for a complete breakdown of the offer, any fees and your net payout.
4. Overlooking tax implications: Some tax implications are obvious, while others are tied to specific conditions or transactions. Consult with a tax advisor to make sure you have all the information.
5. Ignoring ongoing premium cost: If the settlement process is delayed, you’ll continue to pay premium costs. Make sure you’re prepared so your policy doesn’t lapse.
QUESTIONS TO ASK BEFORE CHOOSING A BROKER
Every broker is different, and not all are equipped to get you the best offer for life settlement payouts. Before selecting a broker, ask these four questions:
- Are you licensed in my state? Most states require brokers to be licensed. Even if this is not a requirement, licensure demonstrates a commitment to accuracy and transparency.
- How do you get paid? Life insurance brokers often receive a portion of your payout as payment. Ask for details on the exact amount of this payment and a breakdown of all associated fees.
- How many providers or buyers do you work with? The more buyers a broker works with, the better. If your prospective broker can only name a few buyers or is vague about their prospects, consider taking your business elsewhere.
- Can you show me examples of past offers? Proof is in the payout. While brokers can’t share personal details, they should be able to provide examples of previous negotiations that resulted in clients receiving multiple offers and higher payouts.
UNLOCK THE FULL VALUE OF YOUR POLICY
Ready to get the most money for your life insurance policy? The keys to a strong payout are preparation, representation and competition. Don’t rush the process. Instead, work with a trusted life settlement broker to ensure you receive the offer your policy deserves.
Connect with an expert at Life Settlement Advisors today and learn more about maximizing your life settlement payout.
