The Ultimate Guide To Life Settlements
Did you know that only 10% of life insurance policies actually pay anything out to their beneficiaries?
That means in 90% of cases the insurance company gets to fill their pockets with a lifetime of premiums and you & your family are left with nothing!
Luckly, you are actually able to sell your life insurance policy before your premiums become too expensive or to collect money on your life insurance policy, BEFORE you pass away. This way you can enjoy the money you deserve.
This article explains:
1. How to selling your life insurance policy works
2. The reasons for selling a life insurance policy
3. 3 important factors to consider when selling
4. How to avoid scams
How Does Selling Your Life Insurance Policy Work
Essentially, you must find a buyer for your life insurance policy. You can either do this on your own or go through a partner that helps find a buyer for your policy.
These partners usually make a cash offer based on a few factors, but the 4 most important are:
▷ Your age & health
▷ The kind of policy you hold
▷ The payout benefit
▷ And the cost of the premiums
And why would somebody purchase your life insurance policy? It’s pretty easy to understand. The buyer pays you the agreed upon amount that is less than the death benefit and then takes over the premiums.
Once you pass away, the buyer collects the death benefit that is in total more than the purchase price & the premiums paid.
Most of the time it is a win-win situation as the buyer gets to earn more than their investment amount & the policy seller gets the cash to enjoy, help in their current situation, or get a payout before their life insurance policy lapses (not being able to pay the premiums) and get nothing at all for it, especially after all the years of paying premiums. However, it’s not right for everyone & not everybody qualifies.
Why Would I Sell My Life Insurance Policy?
In my experience, there are 5 main reasons for somebody to sell their policy:
1. If you are critically or chronically ill and your policy does not have an option to access the death benefit early, or the access to an early death benefit is less than what you could sell your policy for
2. If you are in long-term care
3. If you need to fund your retirement
4. If you cannot afford to pay for your life insurance policy anymore and risk losing it
5. If you no longer need life insurance. People need life insurance for many different reasons, and if you don’t need life insurance anymore because you do not have any dependents to support, for example, then this may be an option for you.
3 Important Factors to Consider When Selling Your Life Insurance Policy
1. Are your children and family on board?
Considering your mortality is a difficult subject for you and your closest loved ones. It’s important to make sure your family is set up to succeed financially if you chose to get a pay out on your life insurance now rather than once you pass. Your beneficiaries on your policy will have to sign off to complete the sale of the policy, so it’s crucial to have those conversations with them, to ensure the decision is best for both you, your spouse, and your children.
2. What is your health status?
One of the main things that will qualify you for a life settlement payout is your health status and overall life expectancy. If you are young and healthy there is almost no chance someone will buy your policy because it won’t make financial sense for them to wait 20+ years to collect the death benefit on your policy. However if you are over the age of 65 and have minor to significant health issues, then a life settlement is more likely. If you have a terminal diagnosis and have been given a timeline by a doctor, a life settlement is very likely, and you could be paid a high percentage of the premiums death benefit to use as you wish.
3. What will you use the money for?
As previously mentioned, here are 3 good financial reasons to sell your life insurance policy. First, if you need the money for something immediate such as medical bills or difficult financial times. Second, if you can’t afford the premiums on the policy and are thinking about letting it lapse. Last, if you’re family is financially secure already, and you would prefer to use the money from the payout of the policy to live your life as you see fit during retirement or through a difficult medical diagnosis.
How to Avoid Scams When Selling Your Life Insurance Policy
Be careful if they give you an instant quote
Life insurance is complicated so don’t always take the first quote you get at face value. Many firms will give you a quote higher than they will actually pay to lock you into using them. Just ensure that you get the quote in writing after they have looked at your life insurance policy before you commit to a single firm.
Ensure your firm is LISA certified (Life Insurance Settlement Association)
LISA or the Life Insurance Settlement Association is a regulatory firm that ensures life settlement companies follow proper ethics within the industry. It’s important that your firm is certified with LISA. Other bonus certifications include ethics.net certified and Society of financial professionals members.
Avoid high pressure sales tactics
Be sure you work with a trustworthy broker who is licensed with your state insurance department. Don’t fall prey to high-pressure sales tactics or a broker or provider who wants you to make a fast decision. If you can, work with the agent who sold you the policy, or ask your agent or financial advisor for a referral to a reputable settlement broker.