Life Settlements: Finding New Value in Your Old Life Insurance Policy

Life settlements are life insurance policy purchase by insurance companies or brokers that provide you with a cash settlement on an existing policy that is more than the cash surrender value. While the purchasing of policies has become more standard practice with the advent of viaticals for those with terminal illness, the settlement of life insurance policies for seniors and others is becoming more common place. Now, many new life insurance policies are also available with settlement options encoded in the policy as well.

Who is eligible for a life settlement?

Anyone who has reached the cash surrender amount of their current life insurance policy is eligible to be considered for a life settlement. This does not mean that a life settlement will be offered. There are policies that offer the settlement as a part of each new policy structure, and those that make the purchase of life insurance an independent asset investment. As long as your policy does not stipulate that life settlements are excluded, you can consider this as an option.

Who chooses a life settlement?

Life settlements are often called “senior settlements” as they are becoming increasingly common with senior citizens. People who have a life insurance policy through a business because they are a key person but the business is sold or dissolved also will pursue settlements. Also, life settlements may be a possibility within a bankruptcy proceeding, although care must be taken about how the end settlement is accounted for.

Why is a life settlement a good idea?

Choosing a life settlement can provide you with needed funds and other benefits, but it is something you carefully have to weigh the trade-offs for. If you take a life settlement, you know longer have control of the policy. While this may not seem like a big deal, it means that you would not be able to benefit from a viatical settlement should you need one. Whoever holds your policy due to the life settlement would be able to then receive a viatical settlement on you. It can be a very good way to help balance out the costs of living in retirement that are not keeping pace with inflation. Using a life settlement can provide you with the money to remodel your home or purchase a new one that will allow you to live more comfortably. It can also provide for a better means to provide for your children due to the ever changing state of estate tax regulations.

What you should look for in a company

If you are considering a life settlement it is important that you only consider companies with a solid reputation in the insurance industry. If you receive a settlement from a company and that company then goes out of business, you could still be held liable for the insurance policy. Make sure that you read your current policy carefully to determine any restrictions of settlements or transfers to also make sure there is not a penalty cost that would make a life settlement more costly than beneficial.