When Should Seniors Consider a Life Settlement?




Are you a senior considering a life settlement? It could be a great financial option for you and your family depending on the scenario. 

Whether or not you should consider a life settlement depends on your personal financial situation, goals, and needs. In general, a policyholder may consider selling their policy because their current financial situation does not warrant the need for a policy any longer. Below are some of the most common reasons why policyholders may abandon their policy.


Reasons for a Senior to Consider a Life Insurance Settlement Option

The Premiums Are Too Costly

Many insurance policies were purchased when the policyholder was working and could afford to make regular premium payments. However, now that the person has retired and is living on a retirement plan or social security payments, siphoning a portion of that monthly budget towards an insurance policy may be too costly. This can be especially true for certain types of insurance where the premium increases with age.

Universal life insurance specifically tends to increase in cost around the age of retirement if it was not adequately funded in the early years. Often times, senior policyholders didn’t pay enough premiums into the policy in it’s early in life and it ends up costing them later in life. In addition, the current low-interest rate environment is leading to life insurance companies raising the cost of universal life insurance above what was initially told to policyholders. For instance, Transamerica is being sued for increasing the cost of universal life insurance on seniors above the rate that was expected. Over time, the costs to upkeep a policy may just be too expensive for the policyholder to maintain the plan.

In addition, term life insurance that is convertible to permanent life insurance will often drastically rise in cost at the end of the coverage term. While term life insurance is not always sellable, its still a good idea to inquire if any life insurance settlement options are available on your convertible-term policy.

Funding a Retirement Account

The majority of American seniors have an underfunded retirement account. Saving for retirement is difficult, and selling your life insurance can help solve a savings gap later in life. Economic hardship that can strike anyone at any time. We are all too familiar with the 2007 financial crises that wiped our many Americans’ retirement nest eggs. No one is immune from experiencing financial challenges, and when this happens, paying insurance premiums simply may not the priority. In some cases, a policyholder may decide to sell the life insurance policy to extract the cash for their retirement and at the same time, stop paying premiums too.

The settlement offer can grant flexibility to the policyholder. We have had clients use the settlement payout to buy a retirement home, pay off debts, send their grandchildren to college or overall enjoy a better lifestyle. Because a $1 million life insurance policy holder will receive an average of around $200,000 in cash payout in a life settlement transaction, they can receive enough to really pursue a lifestyle change and make a difference in quality of life.  

Beneficiaries No Longer Need the Plan’s Benefits

Life insurance lasts many years, and many senior policy owners find that the purpose for which they originally purchased their life insurance no longer exists. Most of us purchase life insurance to ensure that our spouse and children are taken care of if we pass away – as a tool to replace income in the event that a breadwinner is no longer able to support the family. But, this purpose can change over time – for example if a policyholder’s children have grown up and are financially independent, then there may not be a need for income replacement. Or if the policyholder has outlived their spouse there may be cause to pursue a life settlement.

Often times, people end up accumulating wealth throughout their life. When they become a senior in retirement, they’ve saved enough that they’re essentially “self-insured” and no longer need the income replacement. Your should sit down and think about why you originally purchased your life insurance. Think through if that need still exists, or if any need exists for the insurance. Then think about if you’d rather have an upfront payout instead of the life insurance protection for your beneficiaries. If you have in fact outgrown the purpose of our life insurance, it makes sense to consider selling the life insurance policy.

The Life Insurance is the Wrong Fit

Life insurance is a complex financial product and we rely on our insurance agent to help us find the right fit. Unfortunately, there are unqualified or dishonest insurance agents that do not fulfill their duty and as a result some Americans end up purchasing a policy that is not right for them.

Not all insurance companies and agents are the same, nor are the products they offer. There are many life insurance policies out there that are poor in quality and take away benefits rather than offer them for peace of mind. For instance, policyholders get stuck paying overly high premiums just to have insurance and don’t generally come out better financially, because that money could be going towards other necessary expenses.

At this point, many individuals would elect to simply abandon the policy altogether. Some individuals elect to drop a policy after looking at a comparable one and determining that it is a better fit. When this is the case, the policyholder may do better to participate in a life settlement and then pursue the new plan.


Pay for Medical Costs

Life insurance settlement options can be an effective way to pay for medical costs. Many people use a viatical option to pay for cancer treatments or heart-related issue treatments. Keep in mind that a life settlement can take anywhere from 4 weeks to 12 weeks to complete – so if you have outstanding medical debt, don’t wait until the last minute to inquire about the option.

Quick Resources

Calculate your Policy Value Policy Sale Process
Guide to Life Settlements Viatical Settlement Info

Are you Eligible for a Life Settlement?

So when you ask “should I sell your life insurance policy?” – make sure to re-assess whether or not the premiums you are paying still fit your needs and financial goals. If not, you may want to consider your other options, such as selling the life insurance. Just because you want to sell your life insurance policy doesn’t mean you necessarily can. You generally have to be a minimum of 65 years old and have a Universal or Whole life insurance policy that is at least $100,000 in size. The exception to the minimum age rule is if you have some sort of terminal disease. Life settlements are odd in that the older someone is, the more valuable their life insurance policy becomes to a buyer. And the larger the policy is, the more valuable it becomes to a buyer. 

Want to know your policy value?

Use this Life Settlement Calculator to estimate your policy offer by answering a few questions.


About Ovid

Ovid is a life settlement exchange. We instantly match you with institutional buyers who are interested in your policy, based on you and your policy profile. Getting an offer for your policy from Ovid buyer partners is completely free. If you do want so sell your policy, Ovid has proven to help obtain average payouts above the industry average. We’re based in San Francisco and have been featured in Forbes, US News, Business Insider for the incredible work we do for consumers. You can learn more about Ovid here.