Many people don’t realize that they can get more than their cash surrender value if they sell their life insurance policies. Essentially, you’ll be doing what’s called a life settlement but let’s explore a few details first.
What is a Life Settlement?
In short, you’re selling your death benefit although the key details are explained below:’
1. Sell life insurance policy to third party;
2. Get more than your cash surrender value;
3. The buyer becomes the death beneficiary;
4. Sell life insurance policy to third party.
When you do a life settlement, you get a one-time cash payment in exchange for your policy’s death benefit. That means that your buyer gets the death benefit from your whole life insurance when you die. That’s why they’re willing to pay you more than your cash surrender value, although less than the final death benefit.
Get More than your cash surrender value
The key takeaway is that you get more money when you do a life settlement than if you only terminate your policy with your life insurance company. How much money you can expect then depends on a few things. These include your current health and age in order to estimate your expected payout time period. Other factors that life settlement investors consider are your premium costs, policy type, life insurance company, and any outstanding loans on the cash value.
On the flip side, a cash surrender value is calculated by adding up total premium payments made to date and subtracting any handling fees. You’re essentially getting back the money that’s in your policy’s cash value, give or take some fees. This is a very different proposal to having a third party invest in your policy in order to get your final death benefit so that you can access the cash value.
The buyer becomes the Death Beneficiary
As mentioned, a core component of a life settlement is that the buyer becomes the death beneficiary. Although, this makes no difference to you during your lifetime except that you no longer have premium payments to deal with.
Requirements for a Life Settlement
It’s worth noting that there are some criteria you have to meet before being able to do a life settlement, as detailed below:
Age and health status;
Types of life insurance;
Life insurance policy value;
Age and health status.
Generally, you should assume that you need to be at least 70 years old in order to do a life settlement. Having said that, you can also do what’s known as a viatical settlement if you’re younger than 70 but have a chronic or terminal disease.
Types of life insurance
It’s also important to remember that you can’t do a life settlement with a term life insurance policy unless you can first convert it into permanent life insurance. Essentially, the cash value of permanent life insurance is what determines the overall value of life insurance policy to investors.
Life insurance policy value
Your life insurance policy will be worth different amounts depending on how long you’ve had it. That’s because it builds up value as you do your premium payments and grows the cash value. Different life settlement companies will look for different things but a good rule of thumb is to have a policy value of at least $50,000.
How to Sell and Get more than your Cash Surrender Value
Assuming you’ve met the criteria and that you’re interested in doing a life settlement to receive more than the surrender value of life insurance then here are some key steps to follow:
- Talk to a financial adviser or get to know the process;
- Get offers from life settlement companies;
- Work with a broker;
- Talk to a Financial Adviser and Understand the Process.
Of course, you can first talk to your life insurance company and get them to help you understand if you meet the criteria and what your policy value is, as well as the surrender value cash you could expect. They’ll also explain the process and the difference between working through a broker or approaching life settlement companies yourself and how this differs from simply accepting value cash surrender.
Life Settlement Companies
You can easily Google life settlement companies in your area or the top ones currently operating. Then it’s a question of what’s most important to you. Would you prefer a fast and efficient process or a higher payout? Some life settlement companies also specialize in small policies which might apply to you. Either way, get a few quotes and weigh up your options.
Work with a Broker
Clearly, a broker’s job is to get you a better deal than if you work on your own. You’ll have to pay them a commission. Regardless, nothing is stopping you from asking for quotes. You can then see for yourself how they compare to the life settlement company quotes.
Parting Words on a Life Settlement Greater than your Cash Surrender Value
If you’ve decided that you no longer need your life insurance policy then it’s worth investigating a life settlement. You’ll get more money for your peace of mind. Moreover, there are plenty of experts to guide you if the process feels overwhelming. Often, the first place to start is with your life insurance company or an independent adviser. Either way, there’s no harm done in asking and gathering the information so you can make an informed decision.
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