Many retirees are just getting by without a financial cushion to pay for emergency expenses. According to Insurance News Net’s recent article, “5 Key Questions Asked About Selling a Life Insurance Policy for Cash,” the ongoing erosion of assets threatens an entire generation of seniors currently having trouble paying retirement costs. Unfortunately, it might be even worse news for baby boomers and Generation Xers. An Associated Press analysis of savings data from the Federal Reserve found that 35% of households in their prime earning years have saved nothing in a retirement account and have no access to a traditional pension. Therefore, for seniors facing a financial crisis or those wanting to shore up their emergency funds, a life settlement may be a necessary option.
A life settlement, also termed “a life insurance settlement,” is a financial transaction that allows a senior to sell an existing life insurance policy for immediate cash. A retiree could, for instance, sell a policy for a percentage of the overall death benefit. Even though many see life insurance as a regular expense, it’s actually an asset with an inherent value that can be sold to a life settlement company.
Most people purchase life insurance for a specific reason, like providing for a surviving spouse and family. However, over time a person’s need for life insurance may change. In such situations, a senior may no longer need the life insurance, even though it served a valuable purpose for years. The cost of life insurance may also increase over time and paying the premiums may become much harder to manage. In these instances, it may make sense to consider a life settlement by selling an existing life insurance policy.
Most individuals who pursue a life settlement are in their mid-to-late 70s and typically not in great health. They have an existing whole life or universal life policy … or a term policy that is near the end of the term (which can be converted). The face value of the insurance policy is a big factor in determining the offer. Life settlement companies typically want policies in excess of $500,000. However, with a new transaction known as a retained death benefit, a senior also may be able to sell a portion of a life insurance policy and keep some coverage intact for beneficiaries.
A life settlement offer is based on a number of factors such as the face value of the policy, the amount of premium needed to keep the policy in force, the seller's medical history and the seller's life expectancy.
Every life settlement transaction is different, and a final offer will not be made until all the different factors are evaluated. Generally, a policy owner receives between 15 to 20 % of the policy's face value.
Reference: Insurance News Net (December 28. 2016) “5 Key Questions Asked About Selling a Life Insurance Policy for Cash”