Life settlements are a powerful financial tool many people don’t know about. It’s the sale of one’s life insurance policy to an investor – usually a large financial institution. The way it works is that the policy owner receives a large upfront cash payment in exchange for transferring ownership of the life insurance policy to an institutional investor. The investor then continues to make the annual premium payments, and when the insured passes away, the investor collects the policy death benefit.
Often times, seniors who have purchased life insurance back when they were full time employees find themselves in situations where their policy is no longer serving their needs. To qualify for a life settlement, the insured generally needs to be at least 65 years old and have a policy type of whole life, universal life or convertible term life. The policy should be at least $100,000 in death benefit. Three key things affect the offer received for a policy:
- Age: the older the insured, the more valuable the policy
- Policy Size: the larger the policy, the more valuable the policy
- Premium Amount: the lower the premium payments, the more valuable the policy