Selling life insurance policies in exchange for cash became popular not more than three decades ago. This practice is better known as a life settlement. The introduction of life settlement in the insurance industry gave birth to new policies and regulations that protect both the policyholder and the buyer. If you are a policyholder and you are planning to sell your life insurance for any reason, you must go to a reputable settlement company to sell your policy so you can get what you deserve from your insurance.
Life insurance buyers
An individual cannot just purchase in-force life insurance from another private individual. A settlement company is the one that buys existing policies from persons who wish to cash in their insurance policies. These companies adhere to industry regulations in purchasing insurance policies.
How much does the policyholder get?
It is clear that the life insurance policy holder will not get the full death benefit amount stated in the contract. What they will get instead is the fair market value of the policy, which is higher than the cash surrender or cancellation value, but is lower than the death benefit amount.
Who will become the beneficiary of the policy?
After the sale of the insurance policy, the settlement company now lists itself as the primary beneficiary of the plan. They will also become solely responsible for premium payments if the seller is not done with the payments yet. The settlement company then becomes the sole beneficiary of the insurance policy when the original policyholder dies.
Who can opt for a life settlement?
Another term for a life settlement is a senior settlement, as the only qualified sellers of insurance policies are senior citizens. Should they feel that they no longer need the plan for a variety of reasons or if they need the money for medical expenses, they can sell their policies, and the buyer will pay them in one lump sum payment.
What life insurance types qualify for a life settlement?
Different life insurance types that can qualify for a settlement are survivorship, universal life, whole life, adjustable life, joint first-to-die and convertible group and individual term life insurance policies. As long as the policyholders of these insurance types qualify, they can sell their policies right away.
What are the eligibility requirements?
There are two eligibility categories:
- The life expectancy of the insured must be between 25 to 144 months based on one or more life expectancy calculations, and the minimum age is 65 years old unless health issues make the insured’s life expectancy shorter.
- With the minimum policy amount of $250,000, the policy must be after the two-year contestable period, and only premium payments remain. The policy should not have any restrictions that will not allow the settlement company to claim the proceeds after death, and the plan must be in force and not encumbered by other parties.
If the insured meets all of these requirements, they can proceed to offer their policy to a reputable settlement company.
To read more on topics like this, check out the health category.