A life settlement occurs when you decide to sell your life insurance policy to a third party, usually an institutional investor. There are plenty of reasons one may not need or want this type of insurance anymore, and the solution to this situation is selling it to somebody else. This way you will receive a one-time cash payment that is larger than the policy surrender value, however, it’s still less than the death benefit value. The number of life settlements is increasing every year due to a variety of factors. As a result, the insurance settlements market was born. When considering a life settlement, it is important to get familiar with all the details of this arrangement and how to make the most out of it.
How Does Life Settlement Work?
In the case of a life settlement transaction, a seller transfers ownership of their life insurance policy to a buyer. All aspects of ownership transfer, including the premium payments and death benefit, now belong to the third party. The investor who takes over the policy inherits and becomes responsible for everything related to the policy, including payout at death, meaning the original policyholder’s beneficiaries no longer receive anything upon the death of the formerly insured. In exchange, the original policyholder usually receives a tax-free cash payment.
Reasons For Selling Life Insurance
People decide to sell their life insurance for many reasons. Usually, this is the case if the policyholder needs money during life more than their beneficiary needs it after they are gone. There are also many unfortunate cases of people no longer having a spouse or children that would be dependent on the claim. On the other hand, some people simply don’t have enough money saved to make life comfortable during retirement, so selling life insurance serves as a supplement to their retirement income. Selling your life insurance can also help with paying for unexpected expenses such as medical bills or long-term care.
Life Settlement Options
Selling an existing life insurance policy can be done in several ways. The most common options are traditional and viatical. In both of these cases, the life insurance policy owner is selling it to an investor. Being over 65 years old and having a permanent life insurance policy that is worth over $100,000, potentially makes you eligible for a traditional life settlement. A viatical settlement is a special form of life settlement in cases of chronic or terminal illnesses. This way the policyholder gets more money based on the shorter life expectancy, and it works well for them in case they need an additional amount of money for their treatments, improved quality of life, and fighting illness.
How To Calculate The Value Of The Policy
Basic factors to consider when calculating payout amount include life expectancy, the death benefit of the policy, and the cost of keeping the policy active. As morbid as it might sound life settlement providers only profit when a policy seller passes away. Therefore, these policies are more valuable if the seller has a shorter life expectancy. The folks behind qlifesettlements.com/how-to-calculate-a-life-settlement explained that to get estimated policy resale value, you can use the online calculator provided by insurance settlement experts. It comes with a detailed explanation of what should be taken into consideration when creating the fair and best value for your policy.
What Is Considered In The Calculations Of The Policy Value?
Aside from the most important issues of life expectancy, and the death benefit, there a few other actors that contribute to the Insurance policy value. This includes the type of policy you have (the most valuable are universal), your health condition compared to the other people of the same age. That means that your lifestyle choices such as smoking, drinking, stress, and similar activities play a crucial role in this. Believe it or not, even gender counts. Women typically live longer than men, so policies on males value more due to the shorter life expectancy.
Financial Advisors
The financial advisor has a critical role in many parts of the life insurance settlement process since his priority is looking out for the best interest of their client. For a start, he will evaluate whether or not a life settlement is appropriate for the individual by taking into account alternatives for the client. If the advisor finds that a life settlement is the right approach, he will then help identify the most suitable life settlement brokerage partner to guide the client through the transaction and get the best deal.
For clients planning to surrender their life insurance, either because they simply don’t need it, or if they cannot afford to keep it, life insurance settlements are an appealing financial alternative to consider. To get the highest value during the process keep in mind all the factors mentioned above and make sure to have an expert by your side to help you through.