What Is the Typical Life Settlement Payout?

Really, the exact dollar amount will differ depending on your policy, provider, and other circumstances. In general, a life settlement payout typically ranges from 10% to 25% of the policy benefit amount. Compared to the surrender value of your policy, a life settlement offers a far greater payout.  Surrendering a policy typically has a return of less than 0.5%, while allowing your life insurance to lapse voids all benefits of the policy and offers no payout. 

If you no longer need your life insurance, life settlement companies are ready to take the burden off of your hands. No more expensive premiums, and no settling for a low-ball surrender payout. Really, selling your life insurance will be a welcome relief to your checkbook and can provide the extra cash you need to enjoy retirement. 

But how do you know if you qualify for this option? And which life settlement providers should you work with? We’ll answer these questions and more in the following sections. 

What Qualifies You To Sell Your Life Insurance Policy?

In order to sell your policy, you must meet certain requirements. Here’s a simple breakdown of what you need to qualify. 

  • Life Expectancy | You must have experienced a negative change in health and have a life expectancy of less than 15 years.
  • Age | You must be 65 or older unless you have certain medical conditions that make you an exception to the rule. 
  • Policy Age | You must have paid into your policy for at least two years.
  • Death Benefit Amount | Your death benefit amount must be $100,000 or greater.

If you still have questions, use our life settlement calculator to determine if you’re eligible for a life settlement!

Is a Life Settlement a Good Idea?

Life settlements can be great, but they are not for everyone. It all comes down to your specific financial situation. For example, if you currently have dependents and a significant amount of debt, it’s probably best to keep your policy. Conversely, if you have no dependents and are virtually debt-free, selling an unwanted policy is a great option. 

Before you decide, consider asking the following questions. 

  • How many outstanding debts do I have?
  • Could I use the settlement money to improve my quality of life?
  • Are my premium payments too much of a burden?
  • What is best for my beneficiaries?

Although answering these questions is a great start, we recommend consulting a financial advisor prior to selling your policy.

What Is the Best Company To Sell Your Life Insurance Policy To?

When exploring your life insurance settlement options, it’s important to note that companies that buy life insurance policies are not all of equal quality. Here’s what you should look for as you weigh your options. 

Determine if the Life Settlement Company Is Licensed and Bonded

A licensed life insurance settlement provider gives you significant peace of mind. If a company is licensed, then you can trust that they will follow all standard best practices, offer you a fair deal, and make certain that all aspects of the transaction are recorded properly. 

Also, depending on what state you live in, you will likely need to work with a life settlement company that is bonded. Many states require a life settlement provider to be bonded to guarantee that all settlements are profitable for the seller. In basic terms, issuing a bond means that the life settlement company can cover costs if you are dissatisfied with the outcome of the sale. 

Work With a Life Settlement Broker

Although you do not need to work with a broker, we highly recommend doing so. Here’s why.

1. Brokers shop your policy around to obtain multiple bids, which ensures you get the best payout from the sale. The broker will charge a fee in the form of a set percentage deducted from the life settlement proceeds. Since the broker gets a cut of the proceeds, there is a strong incentive for them to sell your policy to the highest bidder.

2. Providers purchase life insurance policies. Selling directly to a provider means you could be offered a less optimal payout. Providers often purchase policies for the lowest amount possible so they can resell the policy for a greater amount. Think buy low, sell high. 

Ultimately, life settlement brokers serve your best interest and work with you to achieve the most beneficial outcome. 

Ensure Your Privacy is Protected

After you complete the life settlement, the life settlement provider will have control over your policy. However, it’s important to clearly define what information the provider is privy to once they have control over your policy.  This is a standard regulatory practice, and should be something a qualified life settlement provider automatically adheres to. If not, then that’s an automatic red flag. 

Because the life settlement process is a bit complicated, we do not recommend going it alone. In addition to working with a broker, you should also enlist the help of a financial advisor to make the process as smooth and profitable as possible. 

You can also do some more research on your own! Life Settlement Advisors has created a ton of resources for you to explore, including a comprehensive FAQ page and various articles

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.