When it comes to life insurance policies, there are two ways to reach a settlement. The first is by paying the death benefit to the beneficiary. Generally, death benefits are paid out in four different methods:
1. A lump sum death benefit pays the entire benefit in a single transaction.
2. The interest only settlement option operates similar to an annuity. The death benefit is invested, and the beneficiary receives a regular payment of the accrued interest—though they can pull from the death benefit if needed. This is ideal for very young beneficiaries or those with little experience handling money.
3. A fixed amount option lets you specify how much the beneficiary receives every year. This will continue until the death benefit runs out entirely and no cash value remains.
4. Lastly, the life income settlement option of an insurance policy pays out proceeds over the course of the beneficiary’s life. Also called a life annuity, this fixed period settlement option is typically done for younger beneficiaries.
While death benefits do provide a lot of possible choices, it’s important to know all your settlement options before making a final decision. One lesser known option for a life insurance policy is selling it via a life settlement.
A policyholder may sell their policy for a number of reasons, including:
- Not wanting to pay the premiums
- No longer needing the policy
- Wanting money to spend in the here and now
It’s also possible to sell just a portion of the life insurance policy, so the beneficiary still retains some of their death benefit but the policyholder gets some money up front. And while the payout from selling the policy will be less than the death benefit, it is still significantly higher than the cash surrender value.
But is a life settlement a good idea for you? That’s what we hope to help you discover with this article. At Life Settlement Advisors, we empower policyholders with the knowledge they need to make the best decisions for themselves and their families. And when it comes to life insurance specifically, we help our clients procure the best deal for their life settlements—but only if that’s the right choice for them. Keep reading to learn about life settlement companies and whether it’s an option worth exploring for you.
What Qualifies You for a Life Settlement?
There are a few requirements that both the policyholder and their life insurance policy must meet to be eligible for a life settlement.
First, the policyholder must…
- Be at least 65 years of age.
- Have had a change of health since the policy was issued.
- Have a monthly premium that is less than 5% of the policy’s death benefit.
Additionally, the policy itself must…
- Be at least two years old.
- Have a death benefit of at least $100,000.
- Be either a whole life, universal, survivorship, or convertible term policy.
- Be owned by an individual, corporate entity, nonprofit, or trust.
If you’re unsure about any of your qualifications, please feel free to visit LSA’s qualifications calculator to give you a better idea of what you’re eligible for. If you and your policy meet the minimum requirements, a life settlement may be a great option for you and your loved ones. Not only do you eliminate monthly premium costs for yourself, but you also have more money to spend with your family. While the payout is less than the death benefit, you’re trading money your beneficiaries will get later for memories you can create with them now… and that’s something you can’t put a price on.
A life settlement is a good option for a lot of policyholders, but understanding how it works can be challenging on your own. Thankfully, you don’t have to navigate it alone. At LSA, our advisors have a wealth of experience in working with policyholders and potential buyers, and they can help you find the best possible deal for your policy. We’ll also walk you through the steps of selling your policy and make sure it’s the best decision for you. For more information on how life settlements work, visit our FAQ page or please reach out to us anytime with questions. If you’re sure a life settlement is the right choice, you can also submit your case to us for review. We look forward to working with you!