What is a life settlement?
A life settlement is a transition in which you sell a life policy that you own to a third party. You receive an immediate cash payment for selling your policy. The purchaser becomes the new owner of the policy, and is responsible for future premium payments. When the insured (which may be someone other than you) dies, the purchaser receives the policy’s benefit. Typically the purchaser is an experienced institutional investor, and policies will have face amounts in excess of $250,000.
Why would I want to sell my policy?
If you would prefer to have more money now rather than a future death benefit, you should consider a life settlement. There are many reasons why your policy may no longer meet your needs, including changes in your family, in financial circumstances, in tax law, and in your policy’s performance. A life settlement can give you far more cash for your policy than you would receive from surrendering it to the insurance company.
How can a life settlement get me more money than surrender?
If you surrender your policy to the insurer, they will cancel your policy and return any cash value to you. That cash value does not take into account the value of the death benefit you are giving up. A life settlement pays you the cash value plus a portion of your death benefit’s value.