In general, the following qualification criteria applies: Seniors who are age 65 years or older. Younger insureds may qualify, depending on certain medical conditions. Any type of insurance may qualify, including convertible term insurance. Life insurance policies with death benefits of more than $100,000 are most desirable.
When you sell your insurance policy, you receive a cash payment. The buyer pays all future premiums and receives the death benefit when the policy matures (when the insured dies). Every case is different. The amount you receive will depend on your death benefit amount, premiums, and life expectancy. The amount received from selling a policy will always be greater than the cash surrender value and less than the death benefit value. US policy owners receive on average 4-8 times more than the policy cash surrender values.
The most significant consequence is that the beneficiaries of the originally issued life insurance policy are no longer afforded the death benefit of the policy when the insured passes away. Depending on how long the insured survives, it’s possible that a policy may be sold for substantially less than what it would have paid out had the owner simply held onto it for a while longer. Should the insured pass within a short time of the sale of the policy, there may be some anxiety over the “missed opportunity” to benefit from the full death benefit by the former beneficiaries. There are also potential tax implications attached to the sale of a life insurance policy. In addition, proceeds from the sale of a life insurance policy may be subject to claims of creditors, should such a circumstance be present. The insured individual’s name and contact information will be made available to the new owners of the policy, who will track the insured person’s health status from time to time. This is another factor that should be considered by anyone exploring a possible life settlement.
As a policy owner, you do have some exit strategies when it comes to your life insurance policy – the underlying asset of life settlements. Unfortunately, only six states require the life insurance companies to notify policy owners of the alternatives to lapsing or surrendering a policy back to the insurance company.
The possible exit strategies of a life insurance policy include:
Accelerated death benefits;
Assignment of the policy as a gift;
Replacement/1035 tax-free exchange;
Conversion of the policy from a term policy to a permanent policy;
Conversion of the policy to obtain a long-term care health insurance coverage; and
Maintenance of the policy through loans using the policy or its cash surrender value as collateral.
The purpose of this book is to educate seniors about options available to them if they have concluded they no longer need or can afford a life insurance policy. It is not to promote a specific retirement planning strategy and it is certainly not our desire to encourage anyone to sell a life insurance policy they need or want to keep.
The goal of the book is to educate American seniors that their life insurance policies may have economic value to them while they’re alive, not just to their beneficiaries when they die. Our purpose is to raise consumer awareness about the choices available for their life insurance policies that may no longer be needed or affordable, especially selling the policy, known as a life settlement.