A life insurance resale is another term for a life settlement. It might come as a surprise to many policyholders that their life insurance policy can be sold for an immediate cash settlement. This service – a “Life Settlement” – often provides financial relief to those looking to fund their retirement accounts or for other major expenses.
In a “Life Settlement” – the Life Policy Holder transfers the original policy a third-party investor – also referred to a Life Insurance Buyer. Keep reading for more information.
Here are some most common situations that should lead you to consider a life insurance resale:
- You can no longer afford premiums: Your fixed income may no longer cover your premiums. Failing to pay premiums on a policy is rarely a good decision as it means may mean no or a very low payout.
- You no longer need to protect against income loss: You may no longer have a spouse that would benefit from the claim, or your children may now be adults with independent incomes.
- Your term policy is nearing its end: Term life policies expire and typically have no cash value, you may be able to convert it to a permanent one and then sell it.
- You are looking to supplement your retirement income: Selling a life insurance policy can be a great way to supplement retirement income, or pay for a vacation, contracting work etc…
- You are looking to cover unexpected medical expenses: A life settlement is often used to pay for services of a home nurse, an assisted living facility, or additional medical coverage plans.
Traditionally, a life insurance resale takes 4-12 weeks in total – it involves dealing with a life insurance agent, a life settlement broker and finally a licensed provider. This lengthy and complicated process is also expensive, often charging back nearly 30% of the sale value of the life insurance policy in commissions.
This process also involves a review period for the provider to inquire about the details of policy and your current health status.
We believe the current process is unfair, expensive and lengthy. Ovid offers a smoother experience with better financial outcomes while shaving weeks off of the traditional process.
A policyholder can sell their policy whenever they chose to because life insurance is private property under United States federal law. The U.S. Supreme Court made that clear in the 1911 case of Grigsby v. Russell in which the Court ruled that it was illegal to deny the right of policyholders to sell their life insurance policies.
Since then courts and the public at large have treated life insurance as a financial asset like any other investment, policyholders should review their policies occasionally to determine if they meet their current needs. For shrewd policy owners, that implies understanding whether selling a life policy as part of a life settlement makes sense.
Are You Eligible?
Your Age is the most important criteria in determining eligibility. Typically, the minimum age requirement is 65 years. However, recent negative changes in health may make your policy eligible for sale even if you are below the 65 year old cut off.
The minimum face value is $100,000. A lower face value can be considered for applicants with serious health risks. Do not confuse face value with the actual value of your policy: face value refers to the amount of money your beneficiaries will receive upon your death.
Not all policies may be transacted. Whole and Universal life policies are easily transacted. Depending on the associated cost, convertible Term-life may also be considered. Because premium costs are hard to anticipate, Variable life policies are less likely to be eligible.
Life Settlement vs. Viatical
A Viatical is the sale of life insurance by policyholder whose life expectancy is under two years. Under those conditions, a Viatical is typically arranged for individuals that are terminally ill. Viatical settlements came into prominence during the 1980s as a way for AIDS patients to buy life-extending medication and experience a better quality of life in their final days.
From there, the Life Settlement industry was born as policyholders began to look into selling their life insurance policy early in their retirement. Today life settlements involve individuals with a life expectancy of more than two years, but typically less than twenty.
Since then, Life Settlement have slowly made their way into our mainstream consciousness as it was recognized as a financial product that can be mutually beneficial to both the original policyholder and the third-party investor.
For a long time, the life settlement industry had only considered affluent and middle class individuals with policies upward of $500,000 in face value. This is partly due to how the industry as a whole is compensated and the extended timeline to close a transaction.
We believe that this arrangement is detrimental to the vast majority of individuals with smaller-sized policies. By altering commission schemes and streamlining the application process we are able to offer life settlements to most policyholders above the age of 65 today.
The World without Life Settlements
Without life settlements available, policyholders would have limited options if they could no longer afford their life insurance policy premiums or if they no longer needed or wanted the policy. The holder would have to surrender the policy back to the insurance company and receive its cash value, or let the policy lapse, which essentially makes their previous premium payments worthless.
Consider that the annual life insurance lapse rate is 4.5 percent, according to the Society of Actuaries (SOA). That percentage amounts to $900 billion in death benefits that insurance policyholders never claim, according to the American Council of Life Insurers (ACLI).
In fact, an incredible 88 percent of all universal life insurance policies never mature into a death benefit claim, according to the findings of the Business Economics and Public Policy Department at the University of Pennsylvania.
Even 77 percent of seniors aged 65 or older who buy universal life insurance never see their policy materialize.
Therefore, in some cases, a life settlement provides a better third option. By selling the policy to a third party, the policyholder can receive a cash payment that is 20 to 80 percent of the policy’s face value, which is often 10 to 50 percent more cash than conceding the policy back to the insurance company and accepting its cash value.