Life Settlements - How It May Help

Life Settlements - How It May Help

What is a Life Settlement?

Also known as a structured cash settlement or transaction that occurs when a senior or other individual sells their insurance policy to someone else for higher than its cash value.

While an individual will not receive the actual face value of the policy, accrued cash value often comes in handy to seniors strapped for cash.

Seniors struggling due to economic factors, stagnant cost of living increases and the increased costs of groceries, gas, transportation or medical services, may very well find that they have more life insurance than they need based on their age. A senior who decides that he has an unneeded life insurance policy lying around may very well be able to get a good amount of money for the policy by selling it to someone else rather than relinquishing it to the life insurance company that issued the policy in the first place.

Life settlements is not defined as a lapse or surrender of a life insurance policy, but more as a transferable property. In many situations, a life insurance policy is a solid form of investment and savings plan.

Individuals who own a life insurance policy have the legal right to:

• Name and change beneficiaries
• Change the designation of beneficiaries unless restricted by the issuing life insurance company
• Assign policy cash or surrender value as loan collateral
• Borrow any amount against the policy
• Sell the life insurance policy to someone else

How Can It Help Your Financial Situation?

In many cases, settlement providers and life settlement brokers deal in the transfer and exchange of life insurance policies, but such providers and brokers must be licensed in this state of the life insurance policy owner. Transfer and sale of life insurance policies is legal, and over 40 states in the United States currently have regulations in place that deal with the sale of life insurance policies.

The practice is growing more common as today's baby boomer generation deals with the decline in the economy, devastation of their retirement savings and portfolios, and seeks ways to pay for medical bills or living costs.

Seniors on fixed incomes, those whose portfolios have been severely damaged by the economy and other financially struggling seniors may find that selling an unneeded or large life insurance policy may benefit them now more than their beneficiaries in the long run.

Seniors selling their life insurance policies may expect to receive 20% to 60% of their current average face amount, and often offers more profit than surrounding the policy for its current cash value with the issuing life insurance company.

Disadvantages of Selling a Life Insurance Policy

However, seniors should also understand that like anything, some disadvantages to settlements require careful thought. Selling a life insurance policy does involve a number of risks to the policyholder, including dealing with fraudulent or otherwise disreputable life settlement companies.

When thinking about selling a life insurance policy for a settlement and the benefits of immediate cash, contact several life settlements companies and research them carefully. Check their feedback and ratings on the Internet, and contact the Better Business Bureau to determine their level of services.

Bottom Line

Cashing in an unneeded life insurance policy may offer seniors a boost in recovering their retirement savings. In most cases, seniors considering a settlement may get much more than the surrender cash value of the policy as long as certain stipulations and conditions are met to determine eligibility.

In most cases, in order to be eligible for a settlement, a policy must:

• Have a face value amount of over $50,000
• Have been in force for at least two years
• Receive less than 8% per annum

• The policyholder is 70 years of age or older
• The policy has a low cash surrender value

Laws and regulations differ among states, so do your homework and research the stipulations regarding life settlements in your state of residence.

Note: Seeking the advice of a trained financial professional before you act on this type of transaction or on any financial decision is strongly recommended.

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