Life Settlements 101: A Beginner's Guide

Green Settlements Staff

Table of Contents:

  1. How Life Settlements Work
  2. Why Sell?
  3. Who Is an Ideal Candidate

If you were tasked with compiling a list of your personal assets, what would be the first things that spring to mind? Chances are, you’d start with your tangible possessions: your house, car, jewelry or antiques. However, intangible items are considered assets, too, including your life insurance policy.

How Life Settlements Work

Just like you can sell your property or your vehicle, you can also sell your life insurance policy. This is known as a life settlement, and it occurs when an insured party sells their life insurance policy for more than the policy’s cash surrender value and less than its face value. In exchange for a cash payment, the seller relinquishes control of the policy to the buyer, who assumes responsibility for all future premium payments.

Selling a life insurance policy is quite simple. First, you’ll need to determine whether you qualify. This is where the paperwork comes in—because the value of your settlement will depend on factors such as the size and type of your life insurance plan, you will need to submit your basic policy information. You may also need to grant access to your medical records, which will provide a complete picture of your overall health and life expectancy. After this material is reviewed, the value of your policy will be calculated. Once you accept an offer for your policy, you can often opt for a lump-sum cash payment. Alternatively, you could choose to keep a portion of the policy’s death benefit while alleviating the burden of monthly premiums.

Why Sell?

There are many reasons to sell a life insurance policy. Some seniors decide to sell because they want to pad out their retirement savings or manage daily expenses. Many policyholders need money to put toward medical bills or cover the cost of assisted living or long-term care. Others use their life settlement to fund a trip or pay for their grandchildren’s college education. The life settlement industry has empowered people with financial freedom for nearly two decades, proving time and again that there are real benefits to selling a policy in favor of letting it lapse, or struggling to keep pace with expensive monthly payments.

In some cases, seniors owe tens of thousands of dollars in life insurance payments per year—sometimes they even wind up paying more than the total value of the policy itself, and it makes good financial sense to let someone else take over those payments.

Who Is an Ideal Candidate

There are a few basic criteria you need to meet in order to be eligible for a life settlement. While anyone with a term or permanent life policy can qualify, ideal candidates are over 70 years old and own a life policy whose face value is $100,000 or more. Younger policyholders may qualify as well, especially if they’ve recently experienced a change or decline in their health since purchasing life insurance.

More often than not, policies lapse or get surrendered back to the insurance carrier—studies show that 90 percent of seniors who had lapsed a policy would have considered selling it had they known a life settlement was a possibility.

Whether you can’t afford your current monthly payments, or your circumstances have changed and you no longer need your policy, a life settlement could be just what you need to get back on your feet.

To find out if your policy qualifies for a settlement, get a no-obligation quote today.

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