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Factors To Consider In Choosing A Life Settlement Provider

If you’re a senior citizen, you might notice that a life insurance policy no longer suits your needs and is costing you a king’s ransom. Oftentimes, the high premiums you pay on insurance, the onset of retirement and/or an emergency situation have people seeking something more rewarding.

What is a life settlement?

A life settlement is the sale of an already existing insurance policy to a third party. The current holder of the policy gets paid when selling the policy, and the investor—the one who bought the policy—gets paid upon the death of the original holder. 

When you reach retirement age, you might continue to pay the premiums on a life insurance policy. However, for any reason, you decide you no longer need the policy, or maybe you just decide that you want the money. What can you do in that situation?  

If you decide to simply stop paying the premiums, your policy will simply disappear into thin air. In fact, 98% of policies just vanish when you stop paying premiums. So, this is not going to be a wise solution, and you’ll want to seek other alternatives.

Because insurance policies have the same characteristics of anything else you might own, you have the right to sell it. You will get paid according to the value of the policy. The investor will get their money at the time of your death. It’s pretty much a win/win situation; you get the money you need, and the investor will also get their money later on. 

Who to sell to?

This is when life settlement providers come in. Providers are companies that are licensed by the state they operate in to purchase life insurance policies. They may purchase for their own account or on behalf of clients. 

Why sell?

There are several reasons why you might want to sell. These could include:

  • It is sometimes difficult to pay premiums after retirement
  • Your benefactors are all self-sufficient
  • You have no benefactors
  • You need more cash

Why buy?

When we think ‘investment’ stocks or real estate usually come to mind, but many people see that buying an insurance policy of someone else is another type of investment because the payment to the owner is usually less than what they get afterward. 

What to take into consideration when choosing a life settlement provider

Insurance & Investments Word Cloud

License

It is prohibited that an establishment effectuates a life settlement contract with an owner unless it holds a license with specific requirements. A more detailed article prepared by https://qlifesettlements.com/life-settlement-companies/ tells us that these establishments are required to have a license by the state they’re in. State licensing safeguards that sellers are equally protected both in the sales process and after the sale is completed. The license is meant to establish the limits in values of policy they’re entitled to deal with. It also guarantees that the company is strictly regulated.

Accredited investors

Because they’re highly regulated, policies can only be sold to accredited institutes or companies. Accredited investors could be banks, insurance companies, individuals, or trust funds, to mention a few. 

Providers vs brokers

As mentioned, providers are firms that purchase insurance policies. A broker is a middle person who can connect a policyholder with buyers. Both providers and brokers are regulated by either their state’s Insurance Department or Financial Services Department.

The age factor and eligibility: Investors will take into consideration your age before they purchase. You should know that the younger you are, the higher the likelihood you might not qualify because life expectancy is a factor. There are some stipulations to be eligible to sell your insurance policy. 

These include:

  • If you are 65 years or older, or if you suffer from a serious illness or medical condition.
  • The life insurance policy must be a convertible term, whole term, or universal term. A term means you are insured for a certain period of time. A convertible term means you can change it to another type of policy later on. A whole life term allows you to address long-term goals with your insurance, while universal terms offer more flexibility in death benefits and premium payments. 
  • The policy must have a value of $100,000 or more.

It wouldn’t be surprising that many people don’t know much about life settlements, though they have been around for quite a while actually their popularity began in the late 90s and into the 2000s. Many life insurance owners are not aware of the fact that they can sell their policy for a lump sum of money. But you can do so as long as you qualify and follow specific guidelines. Make sure to choose a licensed and experienced provider. When you need money during retirement, or simply don’t need life insurance anymore, it can be a good financial decision to sell it.


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Factors To Consider In Choosing A Life Settlement Provider

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