What Is a Life Settlement?

In the past, if you owned a life insurance policy that you no longer wanted or needed, you generally had two choices: surrender the policy for its cash value or allow it to lapse. Life settlements present a third option: selling your policy (or the right to receive the death benefit) to an entity other than the insurance company that issued the policy. That transaction is known as a life settlement.

Don’t make either of these mistakes:

1. Don’t let an unwanted policy lapse for it’s surrender value (even with term insurance) without checking to see if you could get a higher value in the life settlement marketplace.

2. Don’t settle on the first offer. Make sure that you policy is being presented to several life settlement companies and that they are force to bid back and forth till the highest bid is obtained.

I had a 65 year client with a $2,000,000 term policy that was expiring with zero cash value. We were able to sell his policy for $400,000. The client’s trustee was just ready to let the policy lapse. The trust got $400,000 instead of zero. That would have been a big mistake.

Life Settlements are complicated transactions. Be sure that you work with an experienced independent broker that can help you evaluate your options.