The truth about Life Settlements

By: Grant Shellhammer
A life settlement, also known as a senior settlement, senior life settlement or life insurance settlement is the sale of a life insurance policy whereby the policy owner receives more than the cash surrender value of the policy.

Many companies will say that Life Settlements are available to seniors over the age of 60. However, the truth is that if the individual is healthy or only has limited health issues, than that required age will need to be over the age of 70. The Life Settlement Provider will use the insured’s age and health to determine a life expectancy. The life expectancy will be used to help determine the amount the provider can offer on the policy.

Another misconception about Life Settlements has to relate to the face amount. Many life settlement companies and brokers will say that the minimum is $100,000. However the truth is for true market maximization you need to have a face value of at least $250,000.

The companies involved in the life settlement transaction have to follow similar processing and procedures for each case, regardless of the face value. A majority of the companies will not perform the extra legwork on a smaller face value policy. The smaller face value policies will not get as much attention, if any.

The offer amount of a Life Settlement is greatly determined by the annual premium amount for the life insurance policy. A handful of providers and brokers will say that they will purchase polices with up to a 9% annual premium. However, the truth is that very rarely will a policy receive an offer if the premium is above 5%. If they are able to attain a life settlement offer for a higher premium file, it will be for an individual that is either very old or has some serious health issues. In most cases, when the policy owner does receive an offer on a high premium case, it will be a small percentage of the face value.

The truth is that Life Settlements are a tremendous financial planning tool. However it is important to understand how they work, the requirements, and if your policy can be sold. Life Settlement Education will continue to grow as more and more regulation is met throughout the industry. It is important to understand that not every life insurance can be sold with a Life Settlement. However, many seniors are now exploring the option of a Life Settlement before lapsing or surrendering a life insurance policy. There is no reason to not explore a life settlement if the policy owner is considering lapsing or surrendering a policy.

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