Annuity.org partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
What is a Life Settlement?
A life settlement is a cash payment in exchange for selling your life insurance policy. Selling a life insurance policy can be a financial solution to help alleviate debt or maintain a higher quality of life. If there is no longer a need for the policy, if there are no beneficiaries, or if the policy premium becomes too expensive to pay for, the policyholder can sell their life insurance contract to a third-party buyer.
- Being over the age of 65
- Having an active policy for at least two years
- Having a life insurance policy with a minimum death benefit of $100,000
Viatical Settlement vs. Life Settlement
There are many reasons policyholders may choose to sell their life insurance policies. One of the most common includes preparing for death when diagnosed with a terminal illness. While life settlements are typically given to candidates 65 years or older, terminally ill candidates have access to a second option: viatical settlements.
A viatical settlement, similar to a life settlement, is also a financial solution policyholders can use to help pay for medical expenses and treatment. However, monetary disbursement can be given to someone of any age who is expected to die within two to four years. The intent of this settlement is to leave families with as little debt as possible after the insured’s death, though policyholders can use the settlement money however they choose.
Though life settlements can also help to alleviate debt, policyholders can use the disbursed lump sum however they choose. Typical life settlements provide more flexibility and are meant for individuals with an extended life expectancy. Be sure to consider your options when pursuing a payout for life insurance policy.
Is a Life Settlement Right for You?
Life settlements are becoming increasingly popular options for seniors looking to liquidate their life insurance policies.
- Over time, it is not uncommon for policyholders to allow their policies to lapse. When they can no longer afford to make the premium payments, policyholders miss payments and can potentially jeopardize their insurance coverage. If you are on a fixed income, or if the premium payments have increased and you can no longer afford them, you can sell your life insurance policy in exchange for a lump sum.
- No Need for a Safety Net
- If you no longer have a need for a life insurance policy, you can reap some of the benefits of your policy while you are still able to enjoy them.
- No Beneficiaries
- If your beneficiary passed before you, or if your children are financially independent, your contract may be unnecessary.
- Financial Status
- Financial situations change everyday, and with old age comes more reasons to visit a doctor. If you need quicker access to cash to eliminate debt or pay for health treatment, a life settlement may be a good option for you.
How to Sell Your Life Insurance Policy
Prior to pursuing a life settlement, policyholders should consider consulting an experienced life settlement broker or a life settlement provider. While both are thoroughly experienced in selling life insurance policies, brokers and providers are different. Providers purchase life settlements, and policyholders can sell their policies directly to them. Brokers are able to solicit bids on your policy to help you get the highest sale price.
- They will acquire your medical records to help calculate your life expectancy. The shorter your life expectancy, the lower the amount of premium charges the buyers will have to pay and the shorter amount of time they will have to wait to collect the death benefit.
- You will complete an application to sell your life insurance policy and send it to competing providers or your broker to solicit an offer.
- Brokers will then bid your policy for potential buyers to help provide you with the highest sale price. If you receive an offer, you have the option to sell your policy.
- You will receive a closing package requesting the transfer of ownership for the life insurance policy. Once the package is returned and all appropriate documents are signed and approved, the buyer assumes responsibility of the policy and will begin making payments on the premium.
- Every so often, buyers will check in to confirm your living status. After your death, the buyer will be able to receive the full death benefit from the insurance policy.
Receiving a Life Settlement
Once you’ve sold your life insurance policy and ownership has been transferred to a buyer or investor, you will be able to receive the life settlement disbursement. It is common for policyholders to receive a lump sum in exchange for rights to their previous life insurance policy. This full payout can help to pay for larger debt, incidentals and commission fees for brokers and lawyers. The lump sum option provides the most flexibility and freedom over your finances.
Policyholders also have the option of receiving a structured settlement, or a series of structured income payments over a period of time. This payout option provides less flexibility, but ensures a steady revenue stream that could add to a retirement fund or pay for ongoing medical expenses.
Interested in Selling Your Policy?
We know how difficult it can be to understand life settlements, sell your life insurance policy and select a trustworthy and honest provider. Our call center staff is always happy to take your call and answer your questions about life settlements. If your premium payments have become a burden and you’re ready to select a provider, we can help with that, too. Our team will do what we can to help you maximize the value of your life insurance policy.
5 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- AARP. (2010, January). Selling Your Life Insurance? Proceed With Caution. Retrieved from https://www.aarp.org/caregiving/financial-legal/info-2017/insurance-life-settlements.html
- Holbrook, A., & Glover, L. (2017, January 6). Life Settlements: Selling Your Life Insurance Policy. Retrieved from https://www.nerdwallet.com/blog/insurance/considerations-when-selling-life-insurance-policy/
- Investopedia. (n.d.). Viatical Settlement. Retrieved from https://www.investopedia.com/terms/v/viaticalsettlement.asp
- Life Insurance Settlement Association. (n.d.). Determine if a life settlement is the right solution. Retrieved from https://www.lisa.org/consumer-advisors/helping-clients/helping-clients-determine-if-a-life-settlement-is-the-right-solution/
- Wang, L. (2016, January 12). Life Settlements: Selling A Life Insurance Policy That's No Longer Wanted for More than Its Cash Value. Retrieved from https://www.kitces.com/blog/life-settlements-selling-a-life-insurance-policy-thats-no-longer-wanted-for-more-than-its-cash-value/