If a situation arises wherein you have to sell your life insurance policy, you will come in contact with life Settlement Company. They will ask for required documentation and paperwork once you have filled the application, the company then brings an offer, if it suits you they will pay you cash and will take care of the future premiums. The offer they get you is the best offer for your policy. Typically the amount you will receive should be higher than the policy’s cash surrender value, but less than the net death benefit. It is upon the company how they want to use your policy. Either they can take your death benefit or they can further sell your policy.
What can be the possible reasons for you to sell your insurance policy?
- Death of the spouse
- Urgent need for cash (Medical reasons)
- You need funds for retirement
- You cannot pay heavy premiums
- They lost a valuable business partnership.
- You don’t have any dependents
- You have endured their guaranteed number of insured years.
There is another condition called viatical settlement, people having a terminal illness(life expectancy less than 2 years) can sell their policy under this. A life/viatical settlement company will sell your life insurance policy for cash you don’t have to worry about the same they will find the right buyer for you.
There are two types of life settlement companies
Life Settlement Providers
Life settlement providers are state-licensed companies who directly purchase life insurance policies for their own accounts or on behalf of institutional investors. They are specialized in purchasing life insurance policies and have better experience in making the final purchase decision. Also, it eliminates the need for intermediaries and expedites the transaction.
Life settlement providers do not have fiduciary accountability towards policyholders. Since Life settlements are regulated by state insurance departments in most of the states it’s always safe and in your favor.
Life Settlement Brokers
Life settlement brokers are an also state-licensed professional who represents policyholders in the life settlement process and do the entire proceedings including negotiation on their behalf with life settlement providers. Since they are experts and well versed with legal and financial transactions they make your job easy. They have a fiduciary duty to represent the policyholders in the best of their interests. Brokers do charge commission starts from 10% of the final life settlement payout. They basically connect the seller and buyers.
Now here is the trick if you are intelligent enough and can do all the hard work along with the legal formalities you can save the commission of the broker. Selling directly to a provider can be nerve-racking, but it’s possible. If you are okay with giving away a part of final settlement amount then the broker is a good decision to hire, he is going to guide you at every step rather is going to represent you, negotiate for you
Who are eligible to sell their life insurance policy in the first place?
- The policyholder aged 65-years or over or suffering from a serious medical condition.
- The life insurance policy must fall under certain types like the convertible term, whole term, or universal term or Joint, and second-to- Dielife insurance policies, issued by a US-based insurance carrier
- Minimum face value of the policy to be of $100,000 or more
- The amount of the premium payments in-force will be a deciding factor of the offer amount.
- Insured may have one or more health damages.
Some deciding factors about the selling amount
- The investor receives the death benefit upon the death of the insured.
- The premium amount will be paid by the buyer until the insured dies.
- The number of years premiums will need to be paid is equal to the life expectancy of the insured.
- The lower are the premiums and the smaller is the life expectancy, the higher will be the selling price.
The tax implication on the sale of the policy will be applicable, it’s important to discuss with your financial advisor regarding the same as the provider or brokers don’t have any information about taxes. After finishing off with the taxes you are free to use your money the way you want there are no limitations or restrictions as such.
There is a difference between selling your policy and surrendering the policy. Surrendering policy means you are trying to encash/terminate your policy before maturity, the amount that insurance company gives is called surrender value. If the policyholder terminates the insurance after five years, life insurance companies can’t charge any surrender charges.
While selling takes care of the following factors:-
- Explore the market, do in-depth research, study every offer carefully.
- Don’t sell the policy in a hurry, take a good time of 2-3 months in advance to take a wise decision.
- If you don’t find a deal lucrative don’t make one.
- Make sure you are dealing with a licensed expert.
- Take care that money coming from the sale of the policy will affect your financial condition and that might affect subsidies etc.
- Be aware
Close the deal only with a life settlement company years of experience in this industry, has made billions of dollars transactions with great portfolios.