What Are Life Settlements and How Do They Work?

Life Insurance is considered an essential safeguard against future calamity and financial loss if you should die an untimely death. If something were to happen to you, your Life Insurance policy will pay your stated beneficiaries a specified amount, helping them to offset the loss of your income. However, there are times when you may have paid expensive premiums on a Life Insurance policy for many years, only to find that it is no longer needed.

Perhaps you have reached the age of retirement and no longer earn an income from employment. What do you do with your insurance policy in this case? Should you continue paying it? Should you let it lapse?

The wisest move may allow you to capitalize on the equity you have built in that policy. Life settlements allow you to capitalize on your Life Insurance policy’s value and improve your quality of life now.

What Are Life Settlements?

The term “life settlement” means nothing more than selling your Life Insurance policy to a third party. You may have heard of this process under a different name. These sales are also called senior settlements, Life Insurance settlements, or viatical settlements.

The point is this: you have a Life Insurance policy you no longer need, but in which you’ve built up a considerable amount of equity. Rather than handing that money over to the insurance company so they can pocket it as profit, you choose to benefit from it directly by selling it to qualified buyer.

How Do Life Settlements Work?

Life settlements are not particularly complex, but you do need to understand how the process works. You have two options if you choose to sell your Life Insurance policy for cash. First, you can opt to sell directly to a provider. Second, you could choose to work with a life settlement broker instead.

Provider – A life settlement provider is the buyer, usually an institutional, qualified, licensed buyer with an interest in purchasing Life Insurance policies to take advantage of the death benefit.

Life Settlement Broker – A life settlement broker networks with multiple providers, but actually works diligently on your behalf to ensure the best possible deal for your policy.

Of the two ways to get started, working with a broker is the better option. Attempting to connect with providers on your own can be difficult, if not impossible. There is also the fact that you have no way to verify if the provider’s offer is fair, and entertaining more than one provider offer can be time-consuming and challenging.

Working with a broker ensures that those responsibilities are handled by an expert well-versed in life settlements and dedicated to ensuring that you get the most money possible for your Life Insurance policy.

Now, let’s address the sale itself. How much cash might you realize when selling a Life Insurance policy? That will vary due to a number of factors, including:

  • Your age
  • The death benefit amount
  • Your current health
  • Your life expectancy

In all cases, you will receive less for your policy than the actual death benefit specified, but you will receive more than the surrender value of the policy. This is because the provider (the buyer) is making an investment. The policy will continue to be in force, and when you pass on, the provider receives the death benefit (they are named the beneficiary of the policy).

Providers must make informed decisions to maximize their potential for profit. For instance, if you were to pass on before your estimated life expectancy, the policy would pay out more for them. If you were to live longer than expected, the policy would pay out less. In some instances, there may be additional costs to the purchaser that would impact the profit realized from the sale.

Is selling your Life Insurance policy right for you? In most cases, the answer is yes, but it is imperative that you work with a trusted life settlement broker. We invite you to contact us today to learn why Life-Settlement.com should be your trusted ally.