Life Insurance Settlement: When Its Time To Sell

A life insurance settlement may be the best option for you if your life circumstances have changed dramatically. The information below will highlight when you should consider selling your policy and what will occur when you do decide to sell.

Who Should Consider Selling

An individual who is experiencing the following situations may want to sell their policy:

  • Premiums for life insurance are too expensive;
  • You no longer want or need the policy;
  • You need cash;
  • You may qualify for a new life insurance policy that’s more affordable than your current one;
  • Policy is about to lapse;
  • Change in life circumstances (failing health or quality of life);
  • Financial circumstances change and you need cash for an improvement or major purchase;
  • Insurance policy may have been taken out by a business for an employee, and the business no longer needs the coverage.
What Happens in a Life Insurance Settlement

In a life insurance settlement, you sell your life insurance policy to another person or entity, usually an investment company. This is the sale, transfer, assignment or bequest of the policy's death benefit to another. In return, you get a lump sum of cash that you can use for whatever you like. You no longer have to make insurance premium payments. The buyer of your policy receives your death benefit when you die. Life insurance settlements usually involve senior citizens or persons who may have a medical condition that will shorten their expected length of life.

What to Consider When Its Time to Sell

When you do decide to sell your policy, be sure to keep the following in mind:
  • Check out fees and commissions- Typical broker’s commission is 4 to 8 percent of the policy’s face value. Another 5 to 10 percent of gross proceeds is for the selling commission, while about 5 percent of the gross proceeds goes for manager’s and servicer’s fees. And origination fees are about 5 percent of the gross proceeds.
  • Beware of scams- The life insurance settlement industry is not heavily regulated – yet. Make sure the company you deal with is licensed. There are individuals and companies out there who will attempt to convince you they can doctor your medical records to buy a life insurance policy you may not have been able to get, with the intent to sell it later for profit (“cleansheeting”). Seniors are often targeted by speculators who convince them to buy a life insurance policy and transfer it to the speculator immediately after the sale. They use pitches such as “free life insurance” or some other incentive. This is called the “stranger-owned life insurance scheme.” And “flipping,” which is also out in the marketplace, involves someone who buys a life insurance policy with a large face value and then turning around and selling it for profit.
  • Find out when you'll get your money- How fast is the turnaround? Is it a couple of days, two weeks, a month? Find out if there is any automatic notification you can get when it's ready, or if there's automatic deposit possible. When and how will you actually receive the funds?
  • Check with your legal advisor- You'll want the best legal advice before you consider selling your life insurance policy.

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