When you find yourself faced with a terminal illness or another condition that threatens your life, finding the funds necessary to handle your treatment and take care of other responsibilities can be a major source of stress. Fortunately, there are ways to receive the funds you need to take care of these many expenses, such as selling a life insurance policy early to receive a lump sum payout.
If this is one of the options that may be available to you, let's take a closer look at what life settlements are, who qualifies for a life settlement, and how you can go about receiving an offer for your current policy.
What Is a Life Settlement?
A life settlement refers to the sale of an existing life insurance policy to a third-party for one, lump-sum payment. In return, the third party then takes over the policy and continues to pay the premiums that the individual was previously paying. Why? In return for purchasing your plan, they receive the payout the beneficiaries would have received upon your death.
Depending upon how much that would have been and how long you have been maintaining your policy, you can expect to receive a generous amount that will be less than your policy's payout but more than the surrender value listed on your contract (which is the amount you would receive if you were to terminate your policy). If you are in a financial bind, having this kind of opportunity is invaluable.
What Determines the Value of a Life Settlement?
Despite not being the most desirable subject to discuss, some values will make your life settlement more desirable to life settlement companies than other policies that may be offered to them. These valuation factors include:
- Your life expectancy and current state of health. If you are someone who owns a life policy and does not expect to live for much longer, you may be able to sell your policy rather quickly as this means that investors will have to pay fewer premiums and will have access to your payout in a shorter period. If you are healthier and have a longer life expectancy, this doesn't mean that you won't be able to sell, but you may have more difficulty doing so.
- The payout of your policy. The greater the payout provided by your policy (given that paying the premiums over time wouldn't lessen this investment), the more likely investors are to purchase your plan.
- The type of policy. Policies like term life policies and universal life policies often sell the best on the market.
- The size of payments that will be taken on by investors. If you pay high premiums, have a higher life expectancy, and do not have the best payout, it will be hard for companies to justify purchasing your plan for you. Remember, to them, this is an investment. If they will not receive the right benefits from purchasing your plan, they are likely to turn it down.
Who Qualifies for a Life Settlement?
As you may have guessed, those who are dealing with a terminal illness or who are older and need access to funds are often among those who qualify and receive a life settlement payment for their policy. If your situation and policy match some of the factors listed above, chances are that you will likely qualify with a third-party. However, some other people who may turn to life settlements and qualify include:
- Individuals who can no longer afford their life insurance policy but do not want their coverage to lapse and lose their investment.
- Those who are experiencing family or life emergencies and need cash immediately.
- Company executives with insurance policies that are no longer needed, or those who simply don't need their insurance policy.
If your policy is attractive enough to buy, you can qualify.
When life strikes and savings are low, there are many different ways you can receive the financial assistance that you need. If a life settlement is something that you are interested in, use the guide above to learn more about what these transactions entail and how you can get the most out of your unneeded life insurance policy.