What is a Life Settlement?

A Life Settlement is the sale of an existing life insurance policy to a third party for a lump sum payment, which is more than its cash surrender value but less than its net death benefit.
 
There are countless scenarios that might encourage a policyholder to exit a life insurance arrangement. Insurance companies mainly offer their customers two choices: lapse or surrender. If the policy lapses, then the contract becomes null and void and the customer loses all amounts of premium paid over the life the policy. If the customer chooses to surrender the policy, then the payout is typically only 3-5% of the policy’s face value.
 
As Americans enter their senior years, they often experience unexpected changes that cause them to reevaluate their priorities. Policies that once made sense for them, may no longer be appropriate under new circumstances. For instance, decisions that seemed appropriate when policyholders had dependent children may no longer seem appropriate once the children are grown and have moved on. Quality improvements in insurance policies over the years are driving individuals to abandon policies they consider to be outdated.
 
The examples below detail some situations in which a policyholder might wish to sell his or her life insurance policy:

  

Ø      The premiums on the policy are no longer affordable.

Ø       The beneficiary for whom the policy was originally purchased is now deceased or no longer has a need for the policy.

Ø       A key-man policy, designed to protect a company from the financial loss of a key executive, is no longer necessary, either because the business has folded or the individual is no longer integral to the business's success.

Ø       The policyholder owns multiple life insurance policies and wishes to eliminate one.

Ø       The policyholder wishes to replace an individual policy with a survivorship policy, a long-term care insurance policy, or funds for long-term care.

Ø       The policyholder requires funds to pay for medical expenses or for new and experimental treatments for himself or someone close to him.

Ø       The sale of the policy would allow the policyholder to maintain a desired standard of living and live out his or her final years with dignity.

Ø       An increase in the liquidity of the policyholder's estate eliminates the need for the policy.

 

 

A life settlement is an option for a growing number of policy owners. Policy owners are free to sell and transfer ownership of their policies. Rather than continuing to pay premiums on a policy that no longer serves its original purpose, life settlements offer payoffs that can be significantly greater than surrendering a policy.
 
According to LISA’s recently published “Data Collection Report”, policy owners who settled (sold) their policies in 2005 received 371% more cash than the cash surrender value option. Unquestionably, life settlements offer a rational and profitable exit strategy that addresses the financial objectives of policyholders.


 
 
 
"As Americans enter their senior years, they often experience unexpected changes that cause them to reevaluate their priorities"




"Quality improvements in insurance policies over the years are driving individuals to abandon policies they consider to be outdated"

 
 

 



"Rather than continuing to pay premiums on a policy that no longer serves its original purpose, life settlements offer payoffs that can be significantly greater than surrendering a policy"

 



"According to LISA’s recently published 'Data Collection Report', policy owners who settled (sold) their policies in 2005 received 371% more cash than the cash surrender value option"