What is a Life Settlement?
A life settlement is the process of selling an existing life insurance policy for a cash settlement. Since life insurance policies are considered private property, they can be extremely valuable assets. Therefore, in the same manner that a person can sell their private property such as their home or vehicle, life insurance policy owners can sell their policies as well.
A common misconception is that a policy’s cash value determines its worth. In actuality, however, the policy’s face value and premiums, as well as the insured’s age, sex and health status are the main factors that determine its potential value in the life settlement market. The amount received for the sale of a policy is generally greater than its cash surrender value, but less than the face value. Once a policy is sold, the seller receives a lump-sum cash settlement, with the buyer assuming responsibility for all future premium payments, as well as becoming both the new owner and beneficiary of the policy.
A life settlement may be a better option than letting your policy lapse or surrendering it back to the insurance company. People often opt for a life settlement if their policy’s premium payments have become unaffordable, if they need help paying for expenses associated with long-term care, or if they want to live a more comfortable retirement.