For many American seniors, participating in a life settlement means getting a lump sum payment in exchange for an unneeded or unwanted life insurance policy. For seniors who need to pay rising long-term care insurance rates, want to pad their nest egg, or just want to trade in their life insurance for travel adventures, a life settlement represents a valuable source of cash.
Selling a life insurance policy to a third party investor through a life settlement means the policyholder will get less than the death benefit, but more than the policy’s cash surrender value. In some states, the law even requires life insurance companies to disclose life settlements as an alternative to surrendering or letting a policy lapse.
The life settlement industry remains fairly unknown among seniors. If you are considering participating in a life settlement, you probably have questions. Here are three questions we frequently hear while helping people through the life settlement process:
Do I have to pay upfront to get a quote or initiate the life settlement process?
Requesting an estimate of how much you may receive in a life settlement is free. Getting a quote takes just a few minutes. Simply answer basic questions about your policy, age, and health status and you’ll find out right away if you may be eligible for a life settlement.
Initiating the life settlement is easy and free. The broker fees come out of the life settlement amount, so there’s never upfront costs associated with this process. If you are over the age of 65, have a convertible term, permanent or universal life insurance policy with a benefit amount of more than $100,000, it’s likely that you can sell your life insurance policy for a cash payout.
Many factors affect how much cash you can get out of your life insurance policy
The average life settlement payout is 20% of the life insurance death benefit. This amount depends on the age and health of the insured person. The amount of the death benefit, cost to pay the ongoing premiums, and type of insurance policy also affect how much the policy is worth.
There are factors that the insured person can’t control such as market conditions and the financial security of the life insurance company. Investors take these into consideration when they offer a life settlement amount to a policyholder.
Is my personal information safe when I participate in a life settlement?
The life settlement industry is highly regulated. Nearly 90% of the American population lives in areas where state laws protect consumers during and after the life settlement process.
From the moment you initiate a quote, your personal information is protected. All private information, including medical records, social security number, age, health status, and life insurance policy details are disclosed only with the policy owner’s written authorization.
Some people who may receive your personal information with your permission include life expectancy underwriters, licensed life settlement company employees, and service providers. Like your life insurance company and life settlement broker, these professionals must abide by state laws protecting consumer privacy.
At the beginning of the life settlement process, you’ll receive disclosure and medical release authorization forms with details about who may potentially receive personal information.
Your identity should never be at risk in a life settlement. If you feel uneasy about signing any document that releases private information to a company or individual in the life settlement process, discuss your concerns with your life settlement broker. They work on your behalf to get you the most money for your insurance policy and can answer your questions about privacy.
The Life Insurance Settlement Association (LISA) offers information about privacy laws and life settlements
This independent agency provides policyholders interested in a life settlement with valuable information about the industry, current state laws, and general information about how to sell a life insurance policy.
LISA is the largest trade organization with the longest history in the life settlement industry. Their members are committed to providing the highest level of service to policyholders.
Members of LISA abide by a strict Code of Ethics that puts the interest of potential and current clients above their own. This organization is a trustworthy source of information for consumers who want to learn more about the life settlement marketplace and personal privacy.
How long does the life settlement process take?
The entire life settlement process, from the initiation of the life settlement estimate amount until the cash disbursement, takes an average of two to four months. Of course, some settlements take much longer to complete and others pay out in a shorter amount of time.
People who require a shorter timeline should let their life settlement broker know as early in the process as possible. Outside parties must fulfill the requests of the settlement broker. For example, they’ll ask the life insurance company for policy statements and information about future premium costs.
There are many factors that go into determining the cash value of a life insurance policy as it applies to a life settlement. Family medical history, medical prognosis, and the opinions of life expectancy experts are important to investors. Life insurance carrier ratings and information about other investment risks take time to compile.
American seniors’ awareness of the life settlement market increases as laws change to require full disclosure of options beyond lapse or surrender of their life insurance policies. With health care and long-term care costs on the rise, many seniors need extra money to maintain their standard of living and take care of their health.
More than $100 billion worth of policies are lapsed or surrendered by seniors each year in part because of a lack of knowledge about the life settlement option. A licensed life settlement broker can help you determine if a life settlement is the right option for your individual financial situation.
Life insurance policies represent a valuable financial asset. A life settlement broker can walk you through every step of the process from obtaining free estimates to accepting an offer.