When you sell your policy to a third party in exchange for cash, you call it a life settlement. People choose their life insurance policy for a number of reasons. Whether it’s to meet medical expenses or be able to afford life after retirement, the money you get from a life settlement can be really useful. Furthermore, when the premium costs get too high, life settlements are the best possible alternative.
A more conventional transaction when a person would no longer need his policy used to be surrendering the policy for a certain amount of money. However, the surrender value is too less when we compare it to the money that a life settlement can get a person. There are a number of criteria or factors that affect the terms of the life settlement contract offer. When you and your policy follow these criteria, you’re eligible to get a life settlement. Life insurance settlement companies help with these factors. Furthermore, these criteria decide how much you get in exchange for your life insurance policy. Here’s a list of those criteria.
Size of the policy
It’s obvious that the larger your policy benefit, which is your death benefit, would be, the more cash you get for your life settlement. There is also a minimum value that your policy benefit should meet. Your policy is eligible for a life settlement only when your policy benefit would at least be worth $100,000.
The reason why policies that are smaller in size are not yet eligible for a life settlement is that the life settlement is relatively new and is still growing. It becomes difficult for life settlement providers to manage policies that are small. However, we can expect that life settlement companies would start taking smaller policies for a life settlement in the future as the industry grows.
Life expectancy and age of the policyholder
Yet another criterion in order for a person to be eligible for a life settlement is the age of the person or policyholder. The minimum age for the policyholder should be at least 65 so that he qualifies for a life settlement. Furthermore, the older the policyholder is, the more cash he gets from a life settlement transaction.
This makes complete sense since as the policyholder ages, the buyer who takes charge of the premium costs would have to pay for premiums for a lesser number of years. The life insurance settlement companies also find out about the life expectancy of the policyholder. This is carried out through the medical reports and medical checkup of the policyholder that gives the buyer an idea about the number of years for which the buyer will have to pay for the premiums.
Cost of premium
Since the buyer of the life insurance policy is supposed to pay for the premiums once the policyholder sells the policy, the cost or the premium also plays a role in deciding how much money the policyholder gets after selling the policy. The lower the cost of the premium, the more money the policyholder can make from a life settlement transaction. This is because the buyer would be able to manage the policy until he gets the death benefit for a relatively lower annual cost.
These are some of the important criteria that both decide whether a person is eligible to sell his policy, and if so, at what rate he would be able to sell his policy. There are also other factors that are involved. While certain types of life insurance policies can get you a life settlement, some of these policies don’t qualify for the same.
Besides these, some factors also differ from state to state. So, it’s important to choose a life settlement company that has a license from the state where you live. Factors, like divorce cases or the death of the beneficiary, also influence certain aspects of life settlements. And these are also different for different states. So, it’s important to know the regulations that your state has decided for a life settlement.
The cash that you get from a life settlement transaction may also be taxable. This means when you plan to get a life settlement, you may need assistance from a professional legal advisor. While life insurance settlement companies help in finding out whether your policy qualifies for a life settlement and its worth, a financial advisor would be able to assist you with tax related matters. So, when you select a life settlement company that offers the best price and work with professionals, you would have the desired outcome.