In terms of definition, a life settlement is the financial transaction of an existing life insurance policy to a licensed life settlements buyer for more than its cash surrender value, but less than its death benefit.

The policy owner transfers ownership and beneficiary rights to an institutional investment fund.

The insured receives a lump-sum cash payment that can often be 4 to 6 times greater than the cash surrender value in exchange for transferring ownership.

The money belongs entirely to the policy seller and can be spent at their discretion. Life settlements can also be in the form of a paid-up death benefit.

Life Settlement History

In 1911, life insurance was deemed personal property by the United States Supreme Court decision of Grigsby v. Russell, laying the early groundwork for life settlement options.

The court stated that you have the legal right to sell your life insurance policy, just like you would with your house or car.

In the late 1980s, life insurance options were primarily seen in the form of viaticals, which involves the sale of a policy by a person facing terminal illness. At that time, most individuals who sold their policies were facing either cancer or HIV/Aids.

Since then, the life settlement space has evolved into an established, well-regulated industry with licensing requirements per state.

Can I Sell My Life Insurance Policy?

Yes, you can sell your life insurance policy through a life settlement—your life insurance policy is your property, which entitles you to sell if you choose to do so.

The average payout of a life insurance sale is 4-6 times the policy’s cash surrender value.

To get started with wanting to sell your life insurance policy, you will first need to see if you meet some minimum qualifying factors, such as:

Own a policy with a $100,000 or more in death benefit – anything less than that typically does not qualify, unless there are considerable health impairments

Life insurance policies generally qualify if you are over age 70

A decline in health from the time when the policy was issued may help better your chances to qualify, but it is not necessary

Because each life settlement case is distinctive, these factors should only be seen as general guidelines. Each case is unique.

If the insured has a terminal illness, refer to viaticals as an option to sell your life insurance.

Why Do People Sell Their Life Insurance for a Life Settlement?

With health care, long-term care, and living costs on the rise, retirees often find themselves in a situation where they need more money. Here are some of the most common reasons you may consider selling your life insurance policy:

You Can No Longer Afford Premium Payments

Depending on the terms of your policy, changes in the insurance market or poor policy performance could drive up the price of the premiums that you pay. Or, you may have experienced an unexpected financial issue—like increased medical expenses, legal issues, assisted living costs, or tax issues. With a life settlement, you can eliminate all future premium payments.

Funds Are Needed To Pay For Medical Care Or Some Other Expense

Faced with economic changes or hardships, selling your policy to recoup the equity you have built over the years is a viable option to fund a significant expense. A few examples of these significant expenses could be funding assisted living, cancer treatments, or medical costs or premiums on another existing policy. Pursing a life settlement can free up some money to ensure these expenses are taken care of.

You Want To Re-Invest The Equity You’ve Built To Take Advantage Of A Better Opportunity

You may want to recapture the money you have paid over the years into your life insurance policy. Whether it is investing in a business, purchasing a new home, paying off a debt or tax liability, purchasing an income-generating annuity, or taking advantage of another opportunity, getting a life settlement could help achieve these goals. These are all options where the equity built in your insurance policy could better work for you and your current circumstances.

Your Life Circumstances Have Changed

Fidelity Investments has projected that a 65-year-old couple retiring today in good health would need $285,000 during their retirement to cover healthcare expenses alone. As we move through the various stages of life, many individuals find they simply no longer need a life insurance policy, or simply want cash now. Life changes such as divorce, retirement, the absence of an estate tax burden, or beneficiaries no longer requiring the policy benefits are potential reasons to consider selling a policy.

Bottom line

If you’re looking to double your money in any reasonable time frame, you’ll need to take some risk. You simply won’t be able to earn enough from safe bank products to reach that goal. Above all, it’s important to remember that you don’t have to make the riskiest trades – ones that look more like gambling than investing – to build your fortune. You do have high-return options that can limit (but not eliminate) your risk, such as a house, S&P 500 funds and 401(k) matching.

You Want Supplemental Income for Retirement

the cost of a comfortable retirement varies from as little as $858,000 to as much as $1.5 million. Selling your policy can be used any way you want. For example, you may want to use those funds for traveling, buying a new house, or other ways that enhance your retirement life.

Life Settlement Terminology

Annuities are a good investment for people wanting a reliable income stream during retirement. Annuities are insurance products, not an equity investment with high growth. This makes annuities a good balance to a financial portfolio for someone near or in retirement.

A Guaranteed Income For Life

An annuity may be a good option if you are close to retirement and are looking for a way to guarantee income during retirement. Annuities can provide a stream of income that lasts for the rest of your life, no matter how long you live.

As a result, this can be an excellent way to hedge against the risk of outliving your other retirement savings

Annuities can be a good way to invest your money if you are buying them for reasons that fit with your money goals. You can buy annuities for reasons that include safety, long-term growth, or income. For instance, a fixed annuity might be a good low-risk option instead of a CD that offers low interest rates. You might get a variable annuity for long-term growth that is tax-deferred. You may opt for an annuity that will bring you income in the future.

In each of these cases, the insurer that issues the annuity will guarantee some portion of the outcome. In many cases, they will guarantee the amount of income you can take from the annuity in the future.

In order to help you fully understand the process, we have defined some of the relevant terms that you may encounter when getting a life settlement:

• Beneficiary

  The person who is designated to receive a life insurance policy’s death benefit upon the insured’s death.

• Cash surrender value

  Also known as cash value, this is the amount the policyowner receives if they surrender the life insurance policy to the insurance company before a death benefit is paid.

• Convertible term life insurance

  A type of term life insurance that can be converted to permanent life insurance within a specified time frame

• Death benefit

  The amount of money the policy’s beneficiaries receive from the policy upon the insured’s death.

• Face value

  This is another name for death benefit, the amount of money the policy’s beneficiaries receive from the policy upon the insured’s death.

• Illustration

  Projections about the future premiums that must be paid on a life insurance policy over the insured’s lifetime, or for a term life policy, during the policy’s term. Illustrations are provided by the insurance company.

• In-force

  A policy is considered in-force when the premium has been paid and it is in good standing.

• Lapse

  A policy is considered lapsed when premium payments are missed for a period of time, including after notices have been sent to the policyowner and the period to make back payments has passed. When a policy lapses, it no longer will pay a death benefit to beneficiaries.

• Term life (TL) insurance

  A type of temporary life insurance that provides coverage for a pre-defined period of time (the policy term). The premiums may remain level or increase annually.

• Universal life (UL) insurance

  A type of permanent life insurance that includes a savings component that accrues cash value. While universal life policies generally have lower projected premiums than whole life policies, the annual cost of insurance (COI) is not fixed and goes up over time.

• Whole life (WL) insurance

  A type of permanent life insurance that includes a savings component that accrues cash value. Premiums for whole life policies are fixed and guaranteed. Once issued, a whole life policy is guaranteed to remain in-force for the insured’s entire life (provided premium payments are made on time), or until the policy matures..

Life Settlements Vs. Viatical Settlements

A common question people ask has to do with the main difference between life settlements and viatical settlements. A viatical settlement is a type of insurance settlement designed for chronically or terminally ill policyholders. It is fundamentally the same as other options at its core. The significant difference is that the insured person is typically suffering from an illness, and has a life expectancy of less than 2 years. Here we have it broken down:

Life Settlement

• The insured is typically a senior in their late 70s.

• The proceeds are usually around 10% to 80% of the death benefit, depending on the life expectancy.

• The funds are usually subject to taxation unless they meet IRS guidelines<

  Viatical Settlement

• The insured is terminally/chronically ill.

• The proceeds usually vary from 50% to 80% of the death benefit.

• The IRS allows funds to be received as a tax-free gain if the insured meets specific criteria stated by a medical professional.

At Angel Family Insurance we are committed to helping you find the right insurance coverage at the best price. We are an independent insurance broker with options for you.

Our experienced, local insurance agents, take the time to assess your individual needs and develop a policy that fits your budget.

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