WHAT is Life Settlement?

The term “Life Settlement” refers to a transaction in which an individual or corporate policy owner decides to sell their insurance policy to a third party in return for a single cash payment.

The cash payment received will be more than the actual cash value of the insurance policy but less than the death benefit.

The new policy owner is now the buyer and changes the beneficiary to a person or entity of their choosing.  The buyer takes over all future premium payments.  When the insured person dies, the insurance policy’s death benefit is paid to the new beneficiary. 

The origins of this mode of transaction date back at least 100 years. 

WHAT is the Life Settlement Process?

The person insured is not required to go to their doctor or take any physical. 

  • Current medical data is requested from the insured person’s physicians.  
  • The medical data is analyzed by an independent third-party vendor that issues a life expectancy report.
  • Various illustrations from the insurance company are ordered.
  • Our team puts together a package that is sent to 15-20 institutional buyers.
  • The buyers go through an auction process to determine the highest cash price available to the seller.
  • Intrust escrow accounts are set up and funded to protect the seller.
  • Legal documents are drawn up for the buyer and seller to transfer ownership of the policy to the buyer.  The documents disclose all fees, so the transaction is 100% transparent to the seller.
  • Once the legal documents are signed and executed, the escrow amount is released to the seller. 
  • After the sale, in some states, there is a recission period that allows the seller to change their mind and void the sales transaction.  After the recission period has ended, the transaction is complete. 

[Note:  Our team uses an auction process to secure the highest cash sale for a policy.  If a seller goes to one institutional buyer for a sales bid, they will receive only one bid for their policy.)

The WHY of Life Settlements

The simple reason an individual or corporate policy owner wants to sell their life insurance policy usually boils down to one reason:  a need to turn their asset into ready cash.

The reasons behind the need to turn their asset into cash are entirely varied and unique to each policy owner.

  • The need for the life policy has passed – policy no longer needed.
  • The premium has gotten too high to maintain.
  • The premium increase coming off a 20-year level premium term policy is too high.
  • Cash is needed for current Investments. 
  • Cash is needed for immediate Living and Care Expenses.
  • Cash is needed to supplement Long Term Care Expenses.
  • Money is necessary to fund Long Term Care Insurance. 
  • Cash is needed to make a charity donation.

 

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