A life settlement is acquiring cash in exchange for the life insurance policy one owns. There are generally brokers and life settlement providers who help you carry out the transaction and get money worth your policy. There are reasons why life settlement has gained a lot of momentum. People would opt for life settlement if they are in a crisis situation and need cash. As such, life insurance policy means you invest in it and let the cash stay there locked up. A life settlement is like a key to access the money you have been investing. With all of that being said, here are a few facts about life settlement that everyone should know.
- When you opt for a life settlement, you get a higher value than the current cash surrender value. However, you make a lesser amount of money than the face value of the policy. And once you sell your life insurance policy to an investor, the investor takes over the premium payments and keeps your policy running.
- The person who buys the policy (investor) gets the benefit of the policy only after the seller passes away. Till the time the seller is alive, the investor would make the premium payments. This is why the life expectancy and the age of the seller matters a lot in estimating how much the policy is worth. it’s but obvious that the older you are, the lower your life expectancy becomes. And this is a general assumption when it comes to calculating the value you would get when you sell your life insurance policy. This is why the policyholder should at least be 65 years old in order to be able to sell his life insurance money for a life settlement. If you are older, you would get more money in exchange for your policy.
- After you sell your life insurance and acquire the money in return, you still have to be in contact with your broker or the life settlement company. The company would want to keep updated about your health status from time to time. This makes sense since the buyer would be able to get benefited only after you pass away. Besides staying in touch with the life settlement company post selling the policy and sharing your medical status, you also have to provide a medical history. This is done before the policy is sold so that the company can analyze your medical records and life expectancy and figure out how much money your policy is worth.
- A life settlement is becoming a highly preferred alternative because of the high rate of life insurance lapse. Life insurance lapse means, all along you have been making premium payments so that the beneficiary can reap the benefit. However, under certain circumstances, even the beneficiary doesn’t make use of the death benefit. It has been reported that a total of 88 percent universal life insurance policies are never claimed in the United States. Life insurance policies are a long-term commitment. And many times, the policy loses its relevance over time. For instance, when a married couple buys two policies and assigns each other as beneficiaries, one would pass away first. While the one who is alive claims the death benefit, his/her policy would remain unclaimed. This being just one instance, there are many other possibilities when a life insurance policy would go unclaimed.
- Life settlements and viatical settlements are very different. People who have a life expectancy lower than 2 years and suffer from a terminal illness (most evident case) are eligible for a viatical settlement. However, a life settlement can be sold under normal circumstances, when you are 65 years or older and your life expectancy is estimated to be over 2 years.
These are some of the basic facts that everyone should know about life settlement. When you plan to sell your life insurance policy, your policy has to meet certain conditions in order to be qualified for a life settlement. Besides these conditions, certain conditions would also affect the value of your life settlement. To know if your policy is eligible for life settlement and what the value would be, you can seek expert’s advice.