A life insurance settlement offers a solution for people looking to make cash from a policy they can no longer afford or need. Many people choose to take this route rather than sell their houses or other assets when they have insurance worth as much as their equity for these assets. The process may become unnecessarily complicated when unfamiliar with what to expect.
A life insurance settlement happens when you sell your insurance policy to a third-party buyer, often an institutional investor – for cash. Once you sell it, the buyer becomes the owner and beneficiary of the policy. With sufficient knowledge of the process, liquidating your life insurance policy becomes a great option.
Read on to learn more about life settlements.
The Process of Receiving a Life Settlement
To receive a life settlement, individuals simply sell their life insurance policy to a third-party investor who exchanges it for a predetermined lump sum. The process typically involves:
Applying And Underwriting
Identify a life settlement company or investor that you will work with, then fill out your application with the company. The application will require you to share personal details and your medical history. The underwriters at the company will use the information you provide to create a life expectancy report.
Reaching out To Buyers and Receiving Offers
The company you approach will consolidate a list of potential buyers. Each of them will present offers for your policy. Some investor companies can instead make you an offer for your policy directly.
Closing Your Sale and Receiving Your Money
The company will assemble a final closing package with all necessary documentation to complete a sale. Once both parties agree to all the enlisted terms and close the transaction, the buyer automatically becomes the policy owner. You, on the other hand, receive the total agreed amount.
When To Consider Selling An Insurance Policy
Every year many policyholders gradually cease to pay their insurance premiums and end up losing all their financial interests. Collectively, policyholders in the U.S. lose about $900 of their potential benefits annually. Life settlement investors provide a solution to policyholders that want to let go of their policy without losing their funds.
You may no longer need your insurance policy for many reasons. For instance, the beneficiary is deceased, or they no longer require the intended support. One common scenario is when you purchased the policy for children who have matured into adults who can fend for themselves.
Another valid reason is when you cannot afford it anymore or the premiums are no longer in your financial priorities. Life settlements are also a good solution for policyholders that require the cash to foot an unexpected expense or to invest in a new venture.
If you’re still working when you decide to sell your policy, you might want to consider putting some of your settlement funds into purchasing a disability insurance policy. Should you become ill or injured and cannot work, an individual long-term disability insurance policy can pay you up to 60% of your current salary.
For those who don’t have a lot of savings or don’t have the income of a spouse to rely on, disability benefits can be the difference between maintaining your current lifestyle or having to go deep into debt. This article gives a good overview of what to look for in a disability policy and which carriers to choose.
The Bottom Line
Selling your life insurance policy is a solid financial strategy you can explore. The process may feel daunting when you dive into the process without guidance. Work with an experienced and reliable settlement company to ensure a knowledgeable team is carrying out the process with you and answering all your questions.
