While purchasing a large life insurance policy in your 30’s was probably a wise move (especially if you were supporting a growing family) that big policy may not be such a great deal after the kids move out. You may no longer need assurances that the death benefit bestowed upon your family by your insurance company will be large enough to securely launch your children into adulthood. Maybe your nest egg isn’t as large or secure as you’d like, and adding a sizeable lump sum would allow you to more easily afford rising health care costs and travel more frequently.
When it comes to recalibrating your insurance to match your current situation, understanding the options is crucial. People typically do one of these three things when their life insurance premiums are too expensive or they no longer need the coverage:
- Surrender the policy; turn the policy back over to the insurance company and take a portion of the cash value offered by the company
- Let the policy lapse: quit paying the high premiums and try to enjoy the extra wiggle room in the monthly budget
- The third lesser known and often much more lucrative option is participating in a life settlement.
Want to know your policy value?
Use this Life Settlement Calculator to estimate your policy offer by answering a few questions.
Life settlement: The option your insurance company doesn’t love
Most people are unaware that a life settlement via a company that specializes in this type of transaction might be a great option for them. For many years, insurance companies lobbied for legislation that would end the life settlement industry’s ability to offer this option to consumers by actively opposing laws requiring them to let policy holders know about the life settlement option.
However, reputable life settlement companies are making a name for themselves by offering a much-needed service. In some states, the NCOIL Model Law (Life Insurance Consumer Disclosure Model Law) now requires life insurance companies to let their clients know that a life settlement may be in their best interests. A life settlement amount that is greater than the cash surrender value of their life insurance policy is a welcome surprise for many people who pursue this transaction.
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You may be a great candidate for a life settlement if…
Opting to sell your life insurance to a group of investors via a life settlement company inside this well-regulated industry is worth a closer look. Pay special attention to this option if you:
- Are over the age of 65 and/or have been diagnosed with a serious or life-threatening illness
- Have a permanent life insurance policy with a death benefit of over $100,000
Asking for offers from life settlement companies to find out what your policy is potentially worth doesn’t obligate you to sell it. Other options for paying high premiums include reducing the death benefit in exchange for a lower premium or taking a loan out against the policy to pay the premium. Here is more information on qualifying for a settlement.
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What happens when you decide to sell your life insurance policy
Converting a whole life or permanent life insurance policy into cash is a process that may take time. Understanding what happens when you decide to turn your expensive or unwanted life insurance policy into a source of income will help you navigate the process while maintaining realistic expectations. As you embark on this journey, please remember that selling your life insurance policy through a life settlement is now a well-regulated process. It isn’t the best answer for everyone, but it is a safe option worth considering.
Many states have laws in place to protect the consumer from fraud. LISA (Life Insurance Settlement Association) is a great resource for additional information about applicable laws and regulations that govern the life settlement industry. There are resources available that will help you get an estimate of what your insurance policy may be worth through a life settlement company. You’ll need to be able to answer a few simple questions:
- What is the policy’s face value?
- What is the insured’s state of residence?
- What is the insured’s age, gender, and general state of health?
- What type of life insurance policy is being evaluated for a life settlement?
- Are there any loans against this policy?
- What are the premiums on this policy?
While it isn’t possible to get an offer in this manner, the estimate will help you decide whether to proceed to the next step.
Want to know your policy value?
Use this Life Settlement Calculator to estimate your policy offer by answering a few questions.
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Communicating with a life settlement broker
A life settlement broker will help you begin the process of finding out how much cash your policy is worth to investors. They will need to gather information about the policy as well as your personal information, including medical records and a list of your current physicians.
At this point, privacy and security may be a concern. The life settlement professional will help you understand your rights throughout the process. Be sure to ask any questions about security or your right to privacy as they arise. A life expectancy company will review your personal and medical information to calculate your life expectancy using actuarial methods. While this may sound grisly or morbid, it’s essential information that investors require to provide you with a cash value on your life insurance policy.
When calculating the value of a policy, the underwriting process includes evaluation of the following factors among others:
- Age of the insured
- Current health status of the insured
- Life expectancy calculation
- Premium expenses going forward
- Amount of death benefit
- Insurance policy carrier ratings
It is possible to get more than one opinion on what your policy is worth in cash. Receiving a purchase offer from a life settlement company does not obligate you to sell the policy. In fact, selling an unwanted life insurance policy is a big decision that should not be taken lightly. It’s best to give the situation careful consideration before saying yes or no to any offer to purchase your policy.
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What happens if you decide to accept an offer from a life settlement company
The entire process of selling your life insurance policy for cash typically takes approximately between three and eight weeks. Should you decide to proceed past the offer stage to acceptance, the life settlement company will handle the closing process. The offer will be added to an escrow account at a bank. After you verify that the funds have been transferred as promised, you’ll have the opportunity to sign the Transfer of Policy Ownership and Agreement of Sale documents. The beneficiary status of the policy will then change from your designated beneficiary to the company purchasing the policy.
After the insurance company transfers ownership of the policy, the funds in escrow are released to you via bank transfer. Deciding to sell your life insurance policy is a big decision, but it is a safe process with many policies in place that protect consumers from unethical brokers. Remember that the insurance industry must abide by regulations that provide a 15-day rescission period to the consumer. So, if you change your mind about selling the policy within 15 days of receiving your settlement offer, you can return the money and become the owner of the policy once again.
Selling a life insurance policy to an investor through a life settlement company can be a complex financial transaction, but it is worth taking the time to understand each step. Exchanging and expensive or unwanted policy for cash is an option that yields wonderful results for many people. Learn more about the closing process here.
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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.