A life settlement converts your life insurance into cash—cash you can use and enjoy while you’re living. Unfortunately, life settlements are often misunderstood or misrepresented. And that misinformation could prevent you from pursuing an attractive financial strategy or even knowing the full value of your life insurance.
Think of it this way. Your life insurance is an asset. To manage that asset effectively, you should know what life settlements really are and how they work.
What Is a Life Settlement?
A life settlement is the sale of your life insurance policy for a lump sum of cash. After the transaction closes, the buyer assumes control of the policy and responsibility for the premiums. Generally, life settlements are available to seniors over the age of 65 with policies valued at $100,000 or more. You can check your own eligibility by reaching out to a life settlement company for a policy review.
The life settlement’s primary advantage is the large cash payout. The market value of your policy should be several times more than the policy’s surrender value, for example. Also, the cash proceeds from a life settlement are unrestricted. You will probably pay taxes on part of your take, but you can spend the remaining funds however you want.
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If you are interested in selling your life insurance—and getting the highest payout possible—here are five important life settlement facts to know.
1. Life Settlements Are Legal and Regulated
Despite common misconception, life settlements are legal, regulated transactions. As with selling a home, there is a legally defined process in place to transfer ownership of life insurance. That process ensures transparency, protects the rights of all parties involved and secures the legal validity of the transaction.
2. You Don’t Need to Be Ill to Sell Your Life Insurance
Many healthy seniors pursue life settlements and for good reason: They have the time to enjoy those unrestricted cash proceeds. You can use your life settlement money to travel the world, fund bucket-list experiences, retire early, establish college funds for grandkids and/or increase your philanthropic activity.
Individuals who are chronically or terminally ill can also sell their life insurance, but through a different transaction called a viatical settlement.
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What role can whole life insurance play in my financial plan?3. You Can Get More Money Selling Your Policy Than Surrendering It
Several factors go into the market value of your life insurance, including your life expectancy, your policy’s premiums and the death benefit value. Even so, the amount you’ll receive from a life settlement will be far more than what you’d get by surrendering the life insurance. Your policy could be worth up to four times your cash value or up to 60 percent of your death benefit.
4. You Can Choose Between Working With a Broker or a Provider
Since you have your choice of working with a life settlement broker or a life settlement provider to sell your policy, it’s helpful to know the difference. The broker’s job is to market your life insurance to multiple buyers and secure the highest bid possible. The broker specifically represents you and has fiduciary responsibility to serve your best interests. You do pay the broker a commission—it’s taken from the sale proceeds—but you should still come away with more cash, thanks to a higher selling price.
Providers represent investors, and their job is to buy the policy at the lowest price possible.
5. Your Policy Is in Your Hands
At the end of the day, what you do with your life insurance is up to you. You could choose to work with a broker or provider, for example. Or you could get an estimate of your policy’s value and decide to hold off on selling for now.
Whatever path feels right, do weigh your options before you commit. Selling your life insurance may or may not be in your best financial interest right now. But you can only make that determination by reviewing your policy’s market value and its premiums, alongside your financial and lifestyle goals.
Take Charge of Your Future
There are various ways to liquidate your life insurance, but a life settlement may be the most lucrative and flexible option. The life settlement is particularly interesting if you don’t need your insurance anymore—why not maximize your return on the premium investment you’ve already made?
Even if you’re not interested in selling your life insurance today, you may want to calculate the value of your life insurance anyway to understand how it impacts your net worth. You can do this with a life settlement calculator or by requesting an estimate from a reputable life settlement company that’s not a provider or direct buyer.
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Lucas Siegel is the founder and CEO of Harbor Life Settlements, a life settlement company that is dedicated to helping seniors and the terminally ill sell their life insurance policies, and Harbor Life Brokerage, a life settlement broker that helps policyholders receive the maximum cash value for their life insurance through its proprietary bidding platform that reaches the world’s largest buyers.
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