Very few people know that you can actually buy and sell life insurance to third parties. When an insured party sells a life insurance policy to a third party investor, the transaction is called a life settlement. In a life settlement transaction, the policy’s owner transfers ownership of the policy to the buyer in exchange for an immediate cash payment and, in some instances, a reduced interest in the death benefit for the policy’s beneficiaries. The buyer of the policy pays all future premium payments and receives the death benefit upon the death of the insured (when the policy matures). When the insured party passes away, the death payment goes to the third party purchaser.
Please note that life settlement transactions are distinct from, though related to, viatical settlements. Both transactions involve selling a policy to a third party investor; however, the distinction is that the law in the insurer’s state may require the viatical settlement contract to be filed with and approved by the state insurance commission. Life settlements usually involve relatively healthy individuals. In contrast, viatical settlements normally involve individuals whose life expectancy is under two years because of terminal illness or a related condition.
Why You Might Consider a Life Settlement
Selling your life insurance policy may seem strange at first but there are many benefits to this including:
- If a loved one needs emergency medical care, life settlement funds may help
- Can provide you with cash now that may see you through your remaining years or cover unexpected expenses.
- A life settlement is a better option than defaulting on life insurance payments. If your life insurance premiums have become too expensive for you to pay consistently, a life settlement is almost always a better option than defaulting on your payments and losing the entire death benefit of your policy.
- Life settlement proceeds can grow your investment portfolio. If you don’t need the full value of your life settlement for current expenses, you can invest the remainder into your retirement portfolio and continue to grow your net worth.
- A life settlement helps fund long-term care. You can put the proceeds of a life settlement into a specialized account to pay for long-term care needs. These needs include nursing homes, residential facilities and in-home care. The accounts allow you to designate a beneficiary who inherits any remaining funds after your death.
While life settlements were once only for seniors with health issues, healthy seniors can no qualify as long as they meet the following conditions:
- Over 65
- They have experienced an adverse change in health but are not terminal
- They own a policy with a death benefit of $100,000 or more and a relatively low cash value
- They no longer need or can afford the policy
Approval can take as little as 24 hours for some healthy seniors. If selling your life insurance policy interests you, contact Music City Estate Law in Franklin, TN today.
Our team of attorneys will help you determine the best course of action to ensure that your interest is cared for.