What Is A Life Settlement?
A life settlement is the sale of a life insurance policy by the policyholder to a third party for a lump sum cash payment that is higher than the policy’s cash surrender value but lower than the death benefit. Typically, life settlements involve individuals who are over 70 years old and no longer need or can afford their life insurance policies. The buyer of the policy, often an investor or a company specializing in life settlements, assumes responsibility for paying future premiums and will collect the death benefit when the original policyholder passes away.
This financial transaction can be appealing to policyholders who want to access the value of their life insurance policy while still alive, especially if they are facing financial hardship or no longer need the coverage. The amount paid in a life settlement is based on factors like the policyholder’s age, health, and the policy’s face value.
Life settlements can be a beneficial option for those in specific financial situations, but they are complex and require careful consideration.
They also raise ethical and regulatory concerns, particularly around the potential for exploitation or conflicts of interest. Regulatory bodies, like state insurance departments, monitor life settlements to protect consumers.
Who Should Consider a Life Settlement
A life settlement is best considered by individuals who no longer need or can afford their life insurance policy, particularly those over the age of 70. This option may be appealing to policyholders who are facing financial difficulties, or simply no longer need the coverage. People who are no longer dependent on their life insurance, such as those with grown children or those without any heirs, might find it financially beneficial to sell their policy.
Those with a significant life insurance policy that has a high face value and is expensive to maintain are good candidates for a life settlement. This could be particularly advantageous for individuals with deteriorating health, as they may receive a higher settlement value due to a shorter life expectancy, making it a viable alternative to letting the policy lapse or surrendering it for a low cash value.
Before proceeding with a life settlement, policyholders should carefully evaluate all available options, including death benefit and premium adjustments, policy loans and withdrawals, policy surrenders, and potential tax implications. Consulting with a financial advisor or a life settlement expert can help assess whether this is the right choice, given personal circumstances and long-term financial goals.
Contact your Life Sales Associate for more information or assistance with a case.