A stage can come in your life where you want to sell away your life insurance policy for a higher cash amount rather than to surrender the policy to the insurance company for less. Basically, a life settlement is to transfer the ownership of your insurance policy to the buyer or licensed life settlement provider thereby making him/her the beneficiary of the policy, wherein the new owner continues to pay the future premiums on your policy in force. The seller gets cash according to the worth of the policy and you can use the cash your way. A life settlement is not for everyone and not every policy can be sold, various factors determine the eligibility of the policy to be sold.
So what features does a policy should have to be eligible for a life settlement? The age of the policyholder should be over 65 years and the minimum face value of the policy should be #100,000 or more with a minimum age of the policy should be two years or more. If the life expectancy of the seller is less the amount received is typically higher. The type of insurance policy should be either of these: Universal Life, Whole Life, Term, Convertible Term, Joint, and Second-to-Die life insurance policies. If your policy qualifies these factors then you can think to sell your policy. Most of the policy will fail at one or another point but is the best option to sell an unwanted insurance policy.
Since a life settlement process involves financial and legal transaction and the procedure is not simple, hence not everyone can sell their policy on their own. Consulting a life settlement broker or a provider can guide you best regarding life settlement for your policy. Their professional guidance will ensure compliance with regulatory requirements and they can negotiate on your behalf to maximize the sale price.
You have to be careful when deciding the life settlement provider, do your homework in depth. You should hire only a licensedlife settlement provider regulated by state and must have years of experience in the insurance industry. With the digital world, you can easily start the process by filling the application and other attaching important documents like your health records and insurance policy details. Your application will be reviewed and the necessary evaluations will be done by the life settlement companies. Once your application/ insurance policy qualified for the eligibly. Thereafter your and policies information is shared with the potential buyers and the buyers can bid on your policy as well, in another scenario the provider sometimes can become the buyer if they decide to. You have to decide whether you want to sell it or not, it is absolutely not important that you have to accept the first offer that comes to you, don’t worry you won’t be charged for declining an offer. The final deal is closed by signing contracts for ownership and transferring the beneficiary right to the buyer and you will get the evaluated cash value.
You are aware that life insurance policy is an asset and can be sold as your any other asset like a car, house, etc. There are different options for selling a policy
- You will no longer pay premiums for your policy yet you retain a portion of your benefit. Beneficiaries will receive a guaranteed percentage of the death benefit through while you don’t pay any premiums further.
- Sell your life insurance policy for cash amount more than surrender value and get rid of the policy, the buyer will pay future premiums and claim the death benefit in full.
- You can sell a portion of your policy.
Why will anyone want to sell their life insurance policy?
- You buy a policy to protect your family during your working age, now after years later your kids are financially independent, thus don’t rely on your insurance policy. But due to some medical condition you need medical treatment and for that you need money, so you can decide to sell your policy to get its cash value (that will be more than the surrender value) to pay your medical bills.
- Let’s take a scenario where you and your spouse both are insured naming each other as beneficiary, after the death of one spouse one policy still remains that can be sold.
- The insurance policy premiums are heavy for you to pay off.
- In the case of the divorce, the policy can be sold.
- Changes in tax laws that may cause an individual to give up on the policy
The life settlement broker facilitates guides and negotiates the deal between the buyer and seller. Settlement providers can buy the policies that either they can hold or can resell to an institutional investor. It is also possible to sell the policy directly to the provider rather than selling it through a broker since the broker will charge a percentage of commission, selling directly through the provider will save you money. A financial advisor will be of help while calculating the taxes post-sale, so you have to be well prepared about this, as it will change your financials it is important to prepare everything accordingly with help of the financial advisor.
There few things to be considered while choosing a life settlement company:
Transactional Fee – Brokers usually used to charge a large fee before the regulation. The fee should be disclosed and no hidden charges should be levied later. The maximum fee that can be charged is 30% of the settlement value, but it varies from broker to broker and policy to policy. Make sure to ask clear and precise information on this.
Transparency and Accountability –A good broker should be soliciting life settlement in an unbiased way by contacting different providers, negotiating and try to close the deal that is the highest bid for you.
Licensing –The life settlement broker has to be fully licensed in the state.
Privacy – Confidentiality agreements must be signed to safeguard your health and other personal information.
The life settlement process usually takes time between 45 and 60 days, though each case will have variable time processing. So you should start the proceedings well in advance.