Life Insurance Settlement Options: Options When Selling Your Life Insurance Policy

A life settlement can be an ideal solution for those holding unneeded life insurance policies, struggling to make premium payments, or in need of additional liquidity. So, how do you choose which of the life insurance settlement options is right for you?

At, we understand that there is no one-size-fits-all solution. That’s why we’re here to guide you on the right path to selling your current policy. To ensure that you are able to make an informed decision for a positive impact on your financial situation, it is important to recognize why you want to sell your insurance policy in the first place.

It is important to note that this is a general overview of your life insurance settlement options. Working with a trusted financial advisor is recommended, especially as language, tax rates, and regulations vary between states.

Your Life Insurance Settlement Options

Life Settlement: A life settlement is a one-time sale of your life insurance policy through a broker or provider (buyer). This option is generally best for those needing a large sum of cash or simply wanting more liquidity. For consumers with a longer life expectancy, this option is ideal. Keep in mind that any sale of a policy will likely incur fees and it is important to discuss all fees and taxes with your broker before making the sale.

Viatical Settlement: Viatical settlements differ from life settlements in that they are specifically for those with terminal illnesses. This settlement is a direct, one-time sale in the case where the insured is diagnosed with a shorter life expectancy, ranging between 24 months and five years, depending on the policy. The idea is that the insured could use the sale of the policy to cover large medical and funeral expenses and relieve their loved ones of potential debt after their passing. While life settlements are treated as income and therefore, taxed, viatical settlements are typically tax-exempt.

Accelerated Death Benefit: A third option, also for the terminally ill with less than 24 months to live, is the accelerated death benefit. This is not a sale of your policy. It is important to know the difference between this and viatical settlement, as they are often discussed together. If you are terminally ill, you may consider accelerated death benefits, rather than selling policy for cash. This allows you tax-free access to a portion of your death benefit now. Once you pass, the remainder is left to your beneficiary. This option is limited to those with over $25,000 in policy face value.

Settlement Payout Options

Life Annuity: This is a fixed monthly payment, based on age and gender, with minimum interest rates. The downside is that this option cannot be changed once selected and is limited to death benefits over $10,000. Life annuity can also be designated for a specific number of years, where any remainder after the owner’s passing is paid to their beneficiary.

Interest Only: The lump sum is left in an account, with a guaranteed annual interest rate and the ability to withdraw up to twice a year at a minimum of $5000 per withdrawal. If the owner should die before the full amount is withdrawn, the remainder is paid to the beneficiary. This option can be changed any time.

Lump Sum: The owner receives one payment in full at one time or has the opportunity to withdraw a lump sum and select either life annuity or interest only for a remainder over $10,000. Should the payee decide to return their lump sum and choose a different option, they are able to do so provided the check is returned within six months of payout and it has not been cashed.

Considering a life settlement and want to know more?

If any of the life settlement options listed above sound like they could be right for your needs and you would like more information, we invite you to get in touch with us at to learn more.