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
Learn more about how life settlements work.
When Should I Consider a Life Settlement?
Life settlements can be a great source of capital, but it isn’t for everyone. There are three general cases where you might consider this option: (1) you can no longer afford your policy’s premiums (2) you need to free up cash – to finance a purchase or to pay for a large upcoming expense, or (3) you no longer need the life insurance coverage.
- You can no longer afford your life insurance.
In this scenario, most people would lapse their life insurance policy – stop paying the premiums and let the policy become void. Unfortunately, this will result in losing all of the previously paid in premiums. A life settlement can help you recover some or all of the money that you’ve paid into the policy.
- You need to free up cash for another expense.
Do you need to pay for an upcoming medical expense or do want to help fund your grandson’s college tuition? If you have life insurance policy, it could be sold to fund something important for you.
- You no longer need your coverage
Most of us purchase policies to protect our children in case of an unexpected passing. However, after many decades, many seniors find that their coverage is no longer necessary because their dependents are now financially independent. A life settlement can help turn this obsolete policy into cash value.
The average life settlement results in an upfront cash offer around 20% of the policy death benefit (example – the policy owner of a $1 million policy would on average receive $200,000 in a life settlement).
If you’d like to learn more, you can check out the Definitive Guide to Life Settlements which covers the topic in detail or get a free estimate using a Life Settlement Calculator.
Ovid Corp. is a leading life settlement company, connecting consumers to institutional investors who purchase life insurance. For more information about Ovid please visit www.ovidlife.com or call 800-311-OVID.