Life Settlement Planning

This post addresses Life Settlement Planning.  Even in this volatile environment, many seniors may have an option for more retirement income available in the sale of their life insurance policy. A “life settlement” could provide them with an average of four or more times the cash surrender value of their policy.

The Street’s recent article entitled “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?” explains that anytime a senior isn’t going to keep a life insurance policy, they should look into a life settlement to bring them the most money when they terminate the policy.

When a policy is lapsed, the policy owner gets nothing. When a policy is surrendered back to the insurance company, the policyowner receives little, if any, cash surrender value. So, in instances where a policy is being lapsed or surrendered, a life settlement makes financial sense.

According to 2019 life insurance industry data, over 90% of life insurance policies (by face amount) that terminated in 2018 were lapsed or surrendered. In 80% of those cases, the policyowners received nothing in return for years of premium payments to the insurance company, because they lapsed their policies.

Over the next decade, more than $2 trillion in life insurance policy death benefits that could qualify for a life settlement is anticipated to be lapsed or surrendered—about $850 billon is projected to be policies between $100,000 and $1 million.

To qualify for a life settlement, an individual must usually be at least 70 years old and own a whole life, universal life, or convertible term insurance life insurance policy, with a death benefit of $100,000 or more.

Traditionally, life settlements have been available only where the insured has developed a significant health impairment since the policy was started, but now even those insureds without a change in health can qualify for a life settlement, depending on their age and the type and size of the policy.

Some life settlement companies take several months to make an offer to purchase a policy, asking for full medical records and independent underwriting. However, recently, these companies have shortened the time in evaluating a policy and making an offer.

Reference: The Street (Dec. 22, 2020) “Is Your Life Insurance Policy Worth More Than Its Cash Surrender Value?”

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