Life Policy Owners

Why Sell?

Like any personal property, your life insurance can be sold through a life settlement.

What is a life settlement?

A life settlement is the sale by the owner of a life insurance policy to a third party for an amount greater than its cash surrender value and less than the death benefit. The seller of the policy receives a cash payment. The buyer of the policy assumes all future premiums payments and receives the death benefit upon the passing of the insured.


Watch the video below to a learn a little more about your money and your life insurance.

Consumer-Awareness-Small


Each year more than $100 billion face value of life insurance lapses by seniors over the age of 65 – mostly from a lack of knowledge that an unneeded or unaffordable policy may be sold.


There are numerous reasons to consider selling a life policy:

  • The premiums are no longer affordable

  • The need to replace lost income in case of death of the insured no longer exists

  • The need for funds to pay estate taxes no longer applies

  • There is a need for resources to pay for health expenses and long term care

  • A term policy may be reaching the end of the coverage period

  • Funds are wanted to improve a retirement lifestyle

The sale of a life policy is not for everyone. 
There are alternatives other than selling a policy that may be appropriate for a policy owner’s circumstances:

  • Keep the policy inforce through a loan or use of the cash surrender value

  • Seek an accelerated death benefit, if available

  • Assign the policy as a gift or charitable contribution

  • Covert a term policy to permanent insurance

  • Reduce the death benefit with a lower face value and lesser premiums

  • Lapse or surrender the policy

Important:

Anyone considering a life settlement should first talk with their insurance, financial and/or legal advisor to explore all legal, tax and other consequences from selling their policy. 

 

Do I qualify?

In general, the following qualification criteria applies:

Age and health status of insured:

Seniors who are age 65 years or older. Younger insureds may qualify, depending on certain medical conditions.


Type of insurance policy:

LISA members can help you with every type of insurance policy, including term insurance.  However the majority of policies sold in the secondary market for life insurance are universal life insurance policies. 

The life insurance policy premiums:

The amount of the premium payments to keep the policy in-force will also play a role on the offer amount. 


Life insurance policy death benefit (face value):  

Life insurance policies with death benefits of more than $100,000 are most desirable. However, some smaller policies can be sold.    

Consumer Tips:

Policies may be owned individually or through a corporation, foundation, trust, non-profit organization or business. It is also very important that all beneficiaries understand the process, agree to the sale and are actively involved in the sales process.
 

How much can I get?

Selling your life insurance policy

When you sell your insurance policy, you receive a cash payment.  The buyer pays all future premiums and receives the death benefit when the policy matures (when the insured dies). 

Every case is different. The amount you receive will depend on:

  1. The death benefit/value of the policy – amount investor receives at the death of the insured
  2. The annual premiums – the amount of premiums that will be paid until the insured dies
  3. The number of years premiums will need to be paid – the remaining expected life of the insured
  4. The rate of return the buyer of the policy requires to make the investment

The amount received from a policy is a mathematical determination that takes into account the impact that each of the factors has on the value.  The higher the premiums, the longer the life expectancy and the higher the required investor’s return, the lower the value of the policy. Conversely, the lower the premiums, the shorter the life expectancy and the lower the investor’s required return, the higher the value of the policy.  


The amount received from selling a policy will always be greater than the cash surrender value and less than the death benefit value.

 

Cash Meter Example

“Americans who sold their unwanted life insurance policies, collectively received more than four times the amount they would have received had they surrendered them to their life insurance companies.”
London Business School Study, 2014

“US policy owners received 4-8 times more than the policy cash surrender values from life settlements from 2006-2009."
US Government Accountability Office (GAO) Study, 2010

Consumer Tip:

Life settlement transactions are complex. Anyone considering a life settlement should first talk with his or her insurance, financial and legal advisors and work with members of the Life Insurance Settlement Association.

Selecting an Advisor

selecting-a-life-settlement-advisor-to-sell-your-unwanted-life-insurance-policy
Understanding the parties involved 

When a policy owner decides to explore whether selling a life insurance policy is a good option for their unique circumstances, the owner or his/her financial advisor should start the process by contacting a member of the Life Insurance Settlement Association who is either a life settlement broker or provider.

Consumer Advisors:

  • Life settlements can be complex financial transactions and are generally conducted on behalf of clients by experienced professional advisors.
  • When representing a client, financial professionals have a duty to represent the best interests of that client.
  • Compensation for service can be paid by fee or, if licensed, by commission.
  • Financial professionals recognize that life settlement regulation varies by state. It is important to know which laws and regulations – if any – apply in your state.

It’s possible to sell your policy through a Life Settlement Broker or Provider

Life Settlement Brokers:

  • Connects the sellers of an insurance policy with buyers.
  • They represent the policy owner and negotiate the offer that best serves the needs of the seller, which may be accepted or rejected by the policy owner.
  • They owe a fiduciary duty to the policy owner.
  • A Broker does not include an attorney, certified public accountant or financial planner retained in the type of practice customarily performed in their professional capacity to represent the owner whose compensation is not paid directly or indirectly by the Provider.

Life Settlement Provider: 

  • Specializes in purchasing life insurance policies in the life settlement market.
  • Providers normally raise capital from institutional investors.
  • Working directly with a provider may eliminate intermediaries and expedite the transaction.  
Sales Process

Understanding the process of selling your unwanted life insurance policy

Each individual scenario could be different based on the parameters of the transaction. 

Life Settlement Process Explained       Life Settlement Application Signed

Step 1 | Discovery:

Policy owner realizes that his/her life insurance policy is an asset that can be sold. 

Step 2 | Representation:

If a life settlement is determined to be the best option, the policy owner or the advisor contacts a member of the Life Insurance Settlement Association who is either a life settlement broker or provider to begin the process. It's possible to engage in a life settlement through both. 

Step 3 | Application:

After choosing proper representation to settle a policy, the policy owner must fill out an application and provide policy, ownership and insured information including a list of physicians and/or medical records for underwriting. It is crucial that you discuss all your privacy and security rights.
 

Step 4 | Underwriting:

The settlement company submits the medical records for review by an independent life expectancy company. Life expectancy companies calculate the probable life expectancy using actuarial and physician experts.
 

Step 5 | Analysis:

Each life settlement provider/buyer calculates the market value for the policy presented for sale. Companies may consider different factors when valuing a policy, including contract specifics such as premium expense, death benefit and carrier ratings, as well as insured information such as age and life expectancy underwriting.
 

Step 6 | Offer:

The provider/buyer will either decline or extend an offer to the policy owner or broker. A broker will seek competing offers from other providers/buyers. The policy owner can accept or decline any offer.

Step 7 | Purchase and Sale Agreement:

If the policy owner accepts an offer, the provider that made the offer will prepare a purchase and sale agreement and other documents formalizing the transaction. The policy owner, insured and beneficiaries then sign this package. The provider will review, complete due diligence and countersign the package. The funds for the settlement transaction are then placed in an escrow account.
 

Step 8 | Notification:

The insurance carrier is notified of the change of policy ownership and beneficiary to the new owner, the provider.

Step 9 | Funds Transfer:

Upon written verification of the change of ownership and beneficiary, the escrow agent releases the settlement payment to the seller of the policy.


Lock

Consumer Resources

Articles, Videos and Whitepapers 

Learn More

Find Help Now 

Select a firm that best meet your needs

Find a LISA Member
LISA Professional

What's New For Consumers

The Latest News

View More
The choice about where to live in retirement is one of the most crucial decisions that a senior makes. It’s not just a major financial consideration, it’s also a highly emotional issue as a retiree’s home is often the anchor to their golden years.

PLANNING FOR RETIREMENT


Should You Stay In Your Home Or Move During Retirement?

(NAPSI)-The choice about where to live in retirement is one of the most crucial decisions that a senior makes. It's not just a major financial consideration, it's also a highly emotional issue as a retiree's home is often the anchor to their golden years.

"One needs to think about where to live, how long to stay there, and whether to move later in retirement," writes Wade Pfau, Ph.D., professor of retirement income at The American College, and contributor to Forbes.com. "There are plenty of justifications for either staying put or moving early in retirement."

There are a few important questions that a senior should ask before deciding whether to stay in their home or to relocate during retirement:

1. Are you making accurate comparisons?

If you stay in your home, you may need to make improvements or renovations in the future to accommodate changing needs. If you move to a new home, you may incur expenses associated with fix-up costs and moving expenses. Make sure you are considering total costs in either scenario.

2. Are you open to renting?

"It can be hard for retirees who have spent their lives building equity in their homes-and being taught about the virtues of homeownership-to become renters," reported The Wall Street Journal. "But renting a home in a city before buying can give retirees a chance to really know if it's the place they want to spend retirement." Moreover, the cost of ownership in many locations actually exceeds the cost of renting, so it may be prudent to consider this option for both short- and long-term possibilities.

3. Where will you have access to important services?

Every consumer looks into the quality of restaurants, supermarkets and other day-to-day retail offerings when scouting out a possible new residential location. Seniors must be especially concerned about practical considerations such as the number of nearby physicians who accept Medicare, convenient transportation for those who are unable to drive, and community centers with special programs for seniors.

4. Would you prefer to age in place or have a change of scenery?

Many people dream about moving to some exotic location for their golden years, but the truth is that 85 percent of retirees stay in the area where they raised their families, according to Realtor.com. Think seriously about whether you're willing to trade your current community for a new one, weighing the pros and cons of aging in place versus charting a new course.

Whether you choose to stay in your home or move during retirement, it will be important to have ample cash on hand that can fund renovations of your existing home or the purchase of a new one. Many seniors are surprised to learn that one potential asset for generating immediate cash is a life insurance policy.

A life insurance policy is considered your personal property and-as such-you have the right to sell that policy any time you like. When a consumer sells a policy in a "life settlement" transaction, the policy owner receives a cash payment and the purchaser of the policy assumes all future premium payments-then receives the death benefit upon the death of the insured. Candidates for life settlements are typically aged 70 years or older, with a life insurance policy that has a death benefit of at least $100,000.

To learn more about life settlements, visit www.LISA.org or call the LISA office today at (888) 672-3917.

It pays to plan ahead when it comes to where you'll spend your golden years.

 

Download high-resolution, print_quality graphic and MS Word document

All news

New Blog Posts

View More
  • Downsizing
    August 20, 2018

    4 Ways to Downsize in Retirement

    The fact is that downsizing isn’t a concept limited to the size of your house or the amount of possessions sitting in boxes. Downsizing can be a strategy applied to far more than selling a large family home and moving into a smaller place for the next chapter of life, it can be a smart retirement strategy when used in other aspects of life as well.

    Read More
  • DIY Life Settlements
    July 13, 2018

    How to Embrace the New Era of “DIY” Retirement Funding

    With traditional pensions disappearing, individual retirement savings accounts are increasingly crucial. Unfortunately, a 2017 report from the U.S. Government Accountability Office found that “many households are ill-equipped for this task and have little or no retirement savings.” Another study found recently that retirement savings “are dangerously low” and placed the median retirement account balance for near-retirement households at just $12,000.

    Read More
  • 73122
    July 01, 2018

    Protect Your Health By Protecting Your Retirement Savings

    If you own a life insurance policy you no longer need or can afford, you may be able to protect your retirement savings—and your personal health—by selling that policy for immediate cash.

    Read More
  • 71455
    June 11, 2018

    Survey Finds Financial Stress High in U.S., Fueled by Retirement Planning Concerns

    Of these retirement funding strategies for seniors, one that is quickly growing in popularity is the sale of a life insurance policy to a third party, which is known as a life settlement. Candidates for life settlements are typically aged 70 or older, with a life insurance policy that has a death benefit of at least $100,000.

    Read More