Since the past decade, we’ve been hearing a lot about life settlements. However, all that most people know is the name and barely what a life settlement transaction means. And there still are people who are completely oblivious to this relatively novel term. If you’re a senior citizen, have a life insurance policy, and don’t really need it anymore or need cash, educating yourself about life settlements might change your life. Here’s everything that you need to know about life settlements.
WHAT IS A LIFE SETTLEMENT?
A life settlement transaction involves selling your current life insurance policy in exchange for cash. In simple words, this means you can cash out term life insurance policy that belongs to you. While the amount of money that the seller of the policy gets is higher than the surrender value, it would be too much to ask for an amount that the death benefit would fetch you.
WHY OPT FOR A LIFE SETTLEMENT?
Many people ask if there are strict reasons that one must have in order to get a life settlement, there are no such preset reasons. You can have your own reasons if you want to sell your life insurance policy and get a life settlement. With that being said, here are some of the most common reasons why people sell their policy for a life settlement.
- People buy a new policy by selling their existing policy when they feel like they don’t need the existing policy anymore.
- The money people get from a life settlement transaction may help them pay off their debts. Whether you have taken a loan or owe money to a third party, you can take care of the debt using the money you get from a life settlement transaction.
- Many seniors find it very convenient to take care of their medical expenses with the help of the cash they receive from a life settlement.
- Likewise, retired people who don’t have pension cash out term life insurance policy for a life settlement so that they can take care of themselves after retiring.
- Many people sell their policy when the premium costs get too high.
- Some people are forced to sell their policy when they either get a divorce from the beneficiary or the beneficiary dies.
ELIGIBILITY CRITERIA FOR LIFE SETTLEMENTS
While life settlements are a real blessing for seniors who need instant cash for whatever reason, there are certain criteria that decide whether or not the policy qualifies for a life settlement. A life settlement professional can help you understand these criteria better. We have covered the points so that you know what these criteria are about.
- Type of life insurance policy
- Age of the policy
- How much the policy is worth
- The age of the policyholder and life expectancy
Once you find out that you meet all the criteria, you then qualify for a life settlement. Furthermore, these factors also affect the value of the life settlement.
PROFESSIONALS WHO DEAL WITH SETTLEMENTS
Finding and transacting with a buyer directly can be a very challenging task, especially if you’re a layman. Thus, there are two types of professionals who help sellers sell their policy to a buyer.
- BROKERS– Brokers are individuals who act as mediators between the seller of the policy and the buyer. They don’t directly buy the policy, but they look for a buyer who is ready to offer a good price for the life insurance policy.
- PROVIDERS– Providers or life settlement providing companies are organizations that carry out a life settlement transaction. They either directly purchase the life insurance policy from a policyholder who is willing to cash out term life insurance policy or may sell the policy to a third-party.
Whether you choose to seek help from a broker or a life settlement providing company, they would help you through the whole transaction process and keep you informed as well as explain everything that you may not understand.
THINGS TO KEEP IN MIND
Since the life settlement industry has not yet matured, you have to be careful about the professional you choose to handle the sale of your life insurance policy. A broker or provider should hold a license to make a life settlement transaction legally. They should also be transparent about everything related to your policy and transaction. Furthermore, the broker should be honest about his commission and should not charge more than 30%.
Since a life settlement transaction gets you a lump sum, it would be taxable. So, you may even need assistance from a financial expert so that you can know about the taxes involved in your life settlement transaction.