10 Facts about Life Settlements

So, what is a life settlement? This concept is very straightforward and is as follows: if you own a life insurance policy and for whatever reason, that policy is no longer wanted, needed, or simply cannot be afforded, there are alternative strategies to simply lapsing, surrendering, or canceling your policy with no further value. Here are 10 facts about life settlements as you think about your future planning:

1. Each year, over 112 billion of face amount is lapsed or surrendered by insureds over the age of 65. 90% of those that were surveyed, wished they knew that selling their policy was an option prior to lapsing or surrendering their policy.*
2. According to the NAIC (National Association of Insurance Commissioners), most settlement funds are used to fund long term care costs.
3. Anyone wanting to sell their policy should be at least 65 years of age unless there are above and beyond extenuating health circumstances. Remember, it is the reverse process of when you apply for a life insurance policy.
4. A viatical settlement involves an insured that is terminal or has a life expectancy of less than 2 years. A life settlement will typically range between 2-18 years.
5. All potential policies must have been in-force for two years (past the contestability clause).
6. Insured’s do not take an exam as they would for new insurance. All life expectancies are calculated from existing medical records.
7. A change in health from the time the policy was issued is preferable to garner the most interest on the secondary market.
8. On average, cases will sell for 6-8 times current surrender value.
9. Turnaround time on cases is typically around 60 days.
10. All Term policies must still have its conversion options available.

*Research conducted by the Life Insurance Settlement Association