What is a Life Insurance Policy Settlement?
A life insurance settlement is the sale of your life insurance policy to a third party in exchange for a lump-sum payment. The amount you receive is greater than the cash surrender value but less than the policy's death benefit.
Who qualifies for a Life Insurance Settlement?
Generally, individuals who are 65 years or older with a life insurance policy that is no longer needed or affordable are ideal candidates for a life insurance settlement.
How is the settlement amount determined?
The settlement amount is based on factors such as the policy’s face value, the insured's health and life expectancy, and the cost of future premium payments.
Do I have to keep paying premiums after the settlement?
No, once the life insurance policy is sold, the investor takes over the responsibility of paying any future premiums.
What types of policies qualify for a settlement?
Permanent life insurance policies such as whole life, universal life, and sometimes even term life policies with conversion options may qualify for a life insurance settlement.
How long does the process take?
The settlement process can take anywhere from several weeks to a few months, depending on the complexity of the policy and required documentation.
Is the money from a Life Insurance Settlement taxable?
In some cases, the lump-sum payment from a life insurance settlement may be subject to taxes. It is recommended to consult a tax advisor to understand your specific situation.
What happens to the death benefit after the settlement?
The death benefit goes to the buyer (the third-party investor) who purchased the policy, not to your beneficiaries, once the insured passes away.
Is a Life Insurance Settlement the same as a viatical settlement?
No, a viatical settlement is typically for individuals with terminal illnesses, while a life insurance settlement is usually for seniors who no longer need their policies and are in relatively good health.
Can I back out of the settlement once it’s finalized?
Once the life insurance settlement process is complete and the policy is sold, you generally cannot reverse the transaction. It's important to fully understand the terms before proceeding.