Life Insurance Settlement Buyers
If you have a life insurance policy, then you may have the option to sell it. Life insurance settlement buyers are often third-party companies who will offer a lump sum cash payment in exchange for your policy. Life settlement buyers typically must be licensed and regulated by the state that you live in.
- Written By Christian Simmons
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- Updated: September 13, 2022
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What Are Life Insurance Settlement Buyers?
Life insurance settlement buyers are most often regulated, legitimate companies.
Since so much of the law governing life settlements is determined at the state level, companies that buy life insurance policies usually must be licensed by the state in which they do business.
If you are interested in selling your policy, you will most likely deal with a third-party company. Remember that this is different from surrendering your policy, which involves a deal with the company who issued the policy, not a third party.
Life settlement buyers purchase policies in an attempt to make a profit off of the death benefit.
Essentially, you sell the policy to them in exchange for an immediate lump sum payment. The company then takes up paying remaining premiums and collects the death benefit when you die, with the hope that the money it receives will exceed what was paid in your payout and in premiums.
What Are Life Settlement Brokers?
According to the National Association of Insurance Commissioners, life settlement brokers exist to help you make the right choice for yourself and find the best deals for your policy.
Brokers represent the seller in negotiations and can field offers from different life settlement companies to help identify the best deal.
The broker is typically paid a commission if the life insurance policy is sold in a deal that they found and organized.
Why Would I Want to Sell My Life Insurance Policy?
There are several different situations that may lead to you choosing to sell your life insurance policy.
One common cause is simply no longer needing the policy. You may not have a beneficiary who would need the death benefit when you die, so you instead opt to sell the policy now for immediate cash.
- You no longer have a beneficiary who needs the money
- You have unexpected expenses
- You can’t afford the premium payments
- You are terminally ill
You may also opt to sell your policy as a way to get immediate cash to deal with an unexpected expense. It may be necessary if you have no other way to get money immediately.
Selling your policy can also be a way to get out of paying its premiums if you can no longer afford to do so. If you are in this situation, surrendering the policy is also an option. But you may get more money if you sell it.
There is another type of policy sale known as a viatical settlement that is available to those who are terminally ill. It works similarly to a life settlement but is only available to those who typically have less than two years to live, and the payout is not taxable.
Who Qualifies for a Life Insurance Settlement?
Not everyone who has a life insurance policy may be able to participate in a life insurance settlement. There are some qualifications that you may have to meet in order for a life insurance buyer to be interested.
Putting yourself in the shoes of the buyer can help you to understand whether your policy makes sense for a settlement.
Buyers participate in life settlements with the goal of making a significant profit. The hope is that, when you die, the death benefit that the buyer receives will be much higher than the lump sum it paid out to you to purchase the policy.
- Has a life insurance policy of significant value
- Is often 65 or older
This means that your life insurance policy will likely have to include a significant death benefit for a buyer to be interested. It also means that you will likely have to be old.
The buyer does not want to risk purchasing the policy of someone who could go on to live for many more years. If the buyer must continue paying premiums for years, or even decades, after purchasing a policy then it stands to make little profit off the eventual death benefit.
So those who are best suited to a life settlement are beneficiaries who are already old and have a sizeable policy.
How Do I Sell my Life Insurance Policy?
The first step to selling your life insurance policy is to ensure that it is truly the best option for you. Remember that your policy may have a cash value.
If you are selling the policy because you need immediate cash, remember to check if an accelerated death benefit is a possibility or if there are any riders attached to your policy that can help before going straight to selling it.
Once you’re sure that you want to sell your policy, you may want to speak with a financial expert or a broker.
They can help you to best compare your different options and find the best deal for yourself. When selling a policy, you want to make sure that you are getting the biggest return possible.
Remember that when you sell your policy, your beneficiary will no longer receive any kind of death benefit when you die.
Once the policy is sold, it belongs to another entity, and you no longer have any control or ownership of it even though it is still tied to your life.
Choosing the Right Life Insurance Settlement Buyer
When looking to choose the right life settlement buyer, it is critical to make sure that you are dealing with a legal entity.
Most states should offer a list or registry of companies that are licensed to deal in life or viatical settlements in that state. Be sure to consult the list and make sure the company you are dealing with is on it.
You should also be aware of any potential fraud. Don’t give personal or financial information to an entity unless you are absolutely sure that they are legally licensed and regulated.
Beyond that, choosing the right buyer likely comes down to the offer that you receive. A broker can help you to make sense of the different options available, understand the cash value of your policy and ensure that you are selecting the best deal.
3 Cited Research Articles
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- Texas Department of Insurance. (2022, June 30). Can I sell my life insurance policy? Retrieved from https://www.tdi.texas.gov/tips/can-i-sell-my-life-insurance-policy.html
- Arizona Department of Insurance and Financial Institutions. (n.d.). Insurance Professionals. Retrieved from https://difi.az.gov/producers/life-settlement-broker
- National Association of Insurance Commissioners. (n.d.). Selling Your Life Insurance Policy. Retrieved from https://content.naic.org/sites/default/files/publications-consumer-life-settlement.pdf