If you’re a senior citizen and own a life insurance policy that you no longer need, you should think about selling life insurance and getting a life settlement. It isn’t surprising to see so many people questioning what a life settlement is, given it’s a relatively newer industry. However, if you really don’t need your policy anymore and you’re looking for a fair price to sell your policy, you should know about life settlements. With that being said, here’s everything you need to know about life settlements.
WHAT IS A LIFE SETTLEMENT?
When you’re selling life insurance policy to a third party in exchange for instant cash, you call it a life settlement. What is peculiar about a life settlement is that while you don’t get as much cash as your beneficiary would with the death benefit, it’s still a lot more than the surrender value of the life insurance policy. Once you sell your life insurance policy, the buyer would pay for the following annual premiums.
Many people believe that life settlement transactions are a big scam. Let us clear this at the very start of this article- this is the biggest myth associated with life settlements. Life settlement companies are also regulated by states, which should give you the confidence that life settlement transactions are perfectly legal and ethical.
WHY IS IT BECOMING POPULAR?
When we compare the popularity of life settlements in the past, and now, we can notice an increased awareness and, as a result, increased popularity. However, what is leading to this increased popularity? There are a number of reasons, and we have mentioned them below.
First of all, when people no longer want their policy and decide of selling life insurance to the insurance company itself, they get a surrender value which is not as impressive as the cash they can get from a life settlement transaction. This naturally drives more people towards a life settlement transaction rather than settling down on a surrender value that comes with a loss.
An estimate of about 88% of universal life insurance policies ends up being unclaimed, which is not a small percentage. More people are aware of this figure. This is why many people who perceive their policy to be an asset are now liquidating it in the form of a life settlement rather than waiting for it to go useless.
WHO WOULD BUY YOUR POLICY?
Since the life settlement industry is still taking its time to mature, you wouldn’t come across official advertisements or hoardings on the highways that let you know about a life settlement establishment. The life settlement professionals still operate in an over the counter fashion, and you need to research more to find these professionals. However, there are two types of professional operating for a life settlement transaction.
BROKERS – Life settlement brokers act as mediators between the buyer and seller of the life insurance policy. Representing the policyholder, a broker would gather all the needed info about the policy as well as the policyholder’s medical records. Upon gathering the info, he would try to find the right buyer for selling life insurance and initiate the process of the transaction. Since brokers are individuals who carry out life settlement transactions all by themselves, they demand a commission. A lot of people see this as a downside to working with brokers.
PROVIDERS – Life settlement providers are part of life settlement companies that carry out life settlement transactions. Most life settlement providers are licensed by the state to carry life settlement transactions. While providers look for a third-party buyer for a policy, many times, the life settlement providing company also buys the policy for itself. While many of the life settlement providers are licensed, it’s still important to check the license before you proceed with the transaction with the help of a life settlement provider.
COMMON CONCERNS
There are certain questions that you should ask and be clear about before you proceed with a life settlement transaction. Here’s a list of those concerns:
BEING OVERCHARGED
When you seek help from a broker or a life settlement provider, the biggest issue is being overcharged for their services. Brokers might ask for huge commissions. To keep a check on it, know that the latest regulations state that a broker or any establishment for that matter can’t charge you more than 30%.
While you have to have an open eye while dealing with a broker, life settlement companies generally keep away from overcharging. This is because they are supposed to maintain a record of their transactions that are assessed on an annual basis. Whatever it is, make sure you talk about their fee and ask for physical proof of how much they are going to charge.
LIFE SECURITY
Since a life settlement transaction involves the buyer being benefited only upon the death of the original policyholder, it might cause you a certain degree of paranoia. As of now, there have been no cases of fraud or foul play reported. However, it’s always safe to sell your policy to a life settlement company that sells policies in bundles. That way, no single buyer would be benefitted from the death of one seller.
CONFIDENTIALITY
A life settlement provider or broker needs to have access to your medical reports, health status, and details about your policy. These kinds of information come under personal information about a person. To ensure that the life settlement professional keeps your information confidential and protected, ask for a written agreement and make the professional sign it. Life settlement professionals usually make sure they sign a privacy policy these days.
THINGS TO REMEMBER
- When looking for a life settlement professional to carry out the life settlement transaction, make sure you do your research and run a background check. Working with an honest, credible, reliable, and state regulated professional is really important.
- Life settlement providers and brokers generally keep their clients informed about each and every step of a transaction when selling life insurance. Make sure you pay attention to the details and ask about things that you don’t know or don’t understand. Doing your own research and finding more about life settlement transaction before proceeding would be very helpful.
- Since a life settlement transaction gets you a huge sum of money, this amount may be taxable. To know what are the taxes you would need to pay on selling your life insurance policy, consult a tax advisor or a financial professional.
