A Life Settlement is a financial option that allows policyholders to sell their life insurance policy to a third party in exchange for a lump-sum cash payment. This option is typically available to individuals aged 60 or older or those with health conditions that affect life expectancy.

Key Features of Life Settlements

  • Eligibility: Life settlements are available to policyholders who are typically 60 years or older, or individuals with health conditions that reduce their life expectancy. The policy must have a significant death benefit and be in force for a minimum period.
  • How It Works: The policyholder sells their life insurance policy to a licensed Life Settlement Buyer (investor) in exchange for a one-time lump-sum cash payment. The buyer assumes responsibility for the future premium payments and will receive the death benefit when the policyholder passes away.
  • Benefits:
    • Immediate Cash: Policyholders receive a lump-sum payment, which can be used for medical bills, retirement, or any other financial needs.
    • Higher Payout: Life settlements typically offer a payout that is 4-10 times higher than the policy’s cash surrender value.
    • Financial Flexibility: By converting an underused asset (life insurance) into cash, policyholders gain financial freedom without the burden of future premiums.

Life settlements can be an effective option for policyholders who no longer need or can afford their life insurance policy but wish to benefit from its value.

Life settlement refers to the sale of one’s life insurance policy to a third-party for a one-time cash payment. The buyer takes over the premium payments and becomes the beneficiary for when the policyholder passes.

A policyholder must be at least 65 years of age to be eligible for a life settlement.

In order to qualify, one must have a life insurance policy face value with a minimum $100,000 face value.

The face value of a $1 million policy is $1 million.

The value is influenced by factors such as the insured’s age, health condition, life expectancy, and the face value of the policy.

Most types of policies, including term, whole life, and universal life, can potentially be sold in a life settlement, though eligibility criteria may vary.

There are a few cases when the death benefit does not equal the face value, however, usually the death benefit and face value are the same.

The process can vary, but the process can usually take between 6-8 weeks.

If under 65, one can still qualify for a viatical settlement if one suffers from terminal or chronic illness with less than two years of life expectancy.

A life settlement involves the sale of a policy by an individual who is not terminally ill, while a viatical settlement is for individuals facing a terminal illness.

Yes, some states like Florida do not differentiate between life and viatical settlements and simply refer to all life insurance settlements as viatical settlements regardless of health.

Cash from a life settlement can be used for various purposes, including covering medical expenses, funding retirement, paying off debts, or making other investments.

Yes, life settlements are subject to tax gains. In general, one would pay taxes on the difference between what one paid into the policy and what one receives from the settlement.

On average, life settlements payout between 20-25% of the policy’s face value.