Life Settlements: FAQs for Consumers
What are life settlements?
A life settlement involves selling an in-force life insurance policy to a third party in exchange for a cash payment larger than the policy’s surrender value. After purchase, the third party becomes the new policy owner (as well as the beneficiary) and continues paying premiums until the policy matures. Those considering surrendering a policy should consider a life settlement, which typically pays considerably more than a surrender value.
Who are the best candidates for life settlements?
Clients typically state one or more of the following reasons for pursuing a life settlement:
- Policy premiums are too costly to continue paying
- The insured needs funds to pay for medical expenses
- The insured no longer has the same need for the policy
- The proceeds from a life settlement would enable the insured to improve their quality of life
- The beneficiary of the policy has passed away
- An ensured employee, or “key man” has left a business, making the policy an unnecessary expense for the company
- The insured wishes to make a cash donation to a charity while still living
What determines how much money a policy will garner in a life settlement?
Many factors come into play during the purchase process. Each life settlement is different and the process is constantly changing. Some of the key elements that determine value include (but aren’t limited to):
- Age and gender of the insured – advanced ages typically yield better returns
- Medical condition and life expectancy of the insured – the shorter the life expectancy, the greater the value
- The policy type (i.e. whole life, universal life, term, survivorship life, variable policies, etc.)
- The face amount of the policy
- The current cash surrender value of the policy
- The ratio of the face amount of the policy to premiums remaining
- The insurance carrier, its ratings and its reputation in the insurance industry
How does the life settlements process work?
- Client or adviser completes an application as well as proper disclosure forms.
- We obtain medical records, attending physician statements and policy in-force illustrations
- We negotiate offers across the settlements marketplace
- Once we secure the best offer, we share it with the client and/or adviser
- Once the offer is accepted, contracts are signed
- Once the policy is officially transferred, the purchasing party pays proceeds. For more information on how the payment process functions, please contact us.