Did you know you can sell your life insurance policy and use the money for other purposes? These transactions often take place with a life settlement agency. A life settlement company is a third-party organization and not the insurer that supplies the policy. The agency pays cash to the policyholder to become the owner of that life insurance account. But how does it actually work?
How It Works
Life insurance settlement companies have become a popular choice for people who no longer need or want their insurance policy. The companies typically offer more money than what the policy owner could get through a cash surrender. The company that buys the policy pays the premiums, becomes the beneficiary, and collects the full value when the owner dies.
Settlement companies may also act as
brokers to find a client a buyer
with the
highest offer. Settlement companies
are
licensed, often backed by financial institutions, and follow many regulations. The
agencies can also act as
an investment reference for their clients, as they help them to understand all their options and find the
best
deal for their needs.
Why It Started
The AIDScrisis
in the 1980s created the need for many people to have access to cash quickly to cover medical costs, buy their medication, and to live out their last wishes. A diagnosis of HIV at that time was almost always a death sentence. So viatical settlements became popular with many people suffering from this disease.
A viatical settlement involved the purchase of a life insurance policy from someone with a terminal illness. The short life expectancy of HIV and AIDS patients made it possible for settlement companies to pay out a sizable percentage of the policy value to the holder.
HIV treatments improved immensely after the 80s, and the condition now gives patients little reason to worry about their life expectancy more than anyone else. But people with other terminal illnesses, like cancer, can still use these life settlement payouts to realize a dream, to
cover
their treatments, or to
pay for at-home care.
How It Adapted
Settlement companies now focus more on people who do not need their policy rather than those with a terminal disease. Today's clients want to see a return on some of the money they invested in their policy and to be free from the premiums. There are many reasons why life insurance policy sales have grown increasingly popular.
- Life expectancy increases, enabling people to live long enough for their children to become financially independent.
- The money invested in the policy could bring a higher return in the stock market.
- The cost of the premium may make the potential future payoff seem less appealing.
- More people stay single than ever before and do not have a beneficiary.
What They Need
Life settlement companies track their clients because they need to file a claim once someone passes away. The company does sometimes need a health history or may ask medical questions of their clients because they must determine their risk with each client. The company estimates the life expectancy to decide what percentage they can pay towards the value of the policy.
To qualify for a settlement, the client must have a permanent life insurance policy. People with term life policies can avoid a financial loss if they convert to a permanent policy and then sell. The age of the policyholder, their health, and the face value of the policy all factor into how much the settlement company will pay.
At HabershamFunding,LLC, we can help you to decide if now is the right time to sell your policy. Our staff can explain all the details about how the settlements work and what you should expect. We can answer questions and offer suggestions to help you make the right choice. Contact us today to schedule a consultation.
