Life settlement insurance is a unique financial transaction where a policyholder sells their existing life insurance policy to a third-party investor for a lump-sum cash payment. Here’s how it works:
The Process:
- Policyholder as Seller: Typically, the policyholder is a senior citizen (often over 65 or 70) who no longer needs or can afford the life insurance policy.
- Third-Party Investors: Specialized companies or individuals purchase life insurance policies as an investment.
- The Sale: The policyholder receives a cash settlement that is more than the policy’s surrender value but less than the death benefit.
- Investor Pays Premiums: The investor takes over premium payments and becomes the beneficiary, receiving the eventual death benefit when the insured passes away.
Who Considers Life Settlements:
- Seniors with Changed Needs: The policy may no longer be necessary or the premiums burdensome.
- Terminally Ill Individuals: Can access funds for medical care or end-of-life expenses before passing away.
- Businesses with Unnecessary Policies: Companies with key-person insurance where the person is no longer with the company.
Reasons to Sell:
- Increased Cash Flow: Offers immediate funds for current needs.
- Expensive Premiums: The lump sum can relieve the financial burden of ongoing premium payments.
- Policy No Longer Needed: Family circumstances or estate planning may have changed.
Important Considerations:
- Regulation: Life settlements are heavily regulated to protect the seller.
- Not for Everyone: You usually need to meet age or health criteria.
- Policy Evaluation: Professional brokers can help find the best offer and navigate the process.
- Less Than Death Benefit: The payout is a percentage of the face value, so it’s not the full amount your beneficiaries would have received.