Life Settlements: What You Should Know

So the moment has come. You’ve worked all your life, and you’ve finally made it to retirement! Your kids are grown with families of their own. Your house is paid. And debt, well debt is a thing of the past. So what now?

If you’re like many older Americans, you may be considering life settlements, also known as senior settlements, where you sell your life insurance policy to a third-party company. In doing so, you eliminate premium payments and get a large sum of cash back.

But before you make a final decision on whether or not to enter into a life settlement, be sure you determine if it’s right for you. Talk it over with a life insurance agent, be sure you read the fine print, and most importantly, understand exactly what the life settlement entails—you don’t want it coming back to bite you later.

What’s the deal with life settlements?
When you sell your life insurance policy to an investment company, the company pays you a percentage of the policy’s face value. If you accept, the policy is out of your hands, and the investment company will pay the premiums until you die, then collect the death benefits.

Investment companies typically look at two major factors when considering how much to offer you and whether or not buying your life insurance policy is worth it to them:

* The total sum of the policy’s worth typically needs to be over $250,000
* If you’re in excellent health and your death risk is low, it’s unlikely the company will be able to profit off of you for a while

In order for life settlement companies to keep tabs on you, they may designate a lawyer or attorney to stay in touch with you. Another method they may use is sending out a postcard periodically, requesting you to send it back. If it’s not returned, an investigation will ensue.

How life settlements differ from viaticals
Though life settlements and viaticals are similar in processes, they differ in terms. Viatical life settlements are when a terminally ill patient sells their life insurance policy to an investment company. They are a “safer” and more stable bet for investors, because the death-risk for the policyholder is so high. With this being said, a policyholder will likely get more for a viatical settlement than for a life settlement. Even if the policyholder’s health declines, unless it is due to a terminal illness, the sale of their insurance policy will be declared a life settlement.

On the average, a policyholder may only get 20 percent off of a life settlement, where as for a viatical settlement, they may get between 50 and 80 percent.

Life settlement sales on the rise
When it comes to life settlements, policyholders can expect to get fair market value price for the sale. The lump sum of cash can help them with financial needs, estate planning, reinvestments, extended care, retirement or anything else they’d like to take care of. Also, by selling their life insurance policy, the burden of making premium payments, which continue to increase as they age, is washed away.

What to watch out for
The insurance industry does warn policyholders to be careful when considering a life settlement. Insurance.com has compiled a list of helpful tips for you to consider before you sell your life insurance policy:

* Research before signing into anything. Be sure to understand what the terms of the contract are and don’t be afraid to ask questions or just say “no” if you don’t feel comfortable with the sale.
* Go through a broker, but if you don’t, negotiate through provider firms and see what kind of market is out there for your life insurance policy.
* Be sure the company you are looking to sell to is licensed.
* Beware of scams like “wet papering,” where an insurance company pressures an older person into buying a life insurance policy then has them sell it to them.
* Beware of “cleansheeting,” where someone teams up with an investment firm and alters their health status on their records to be better than it is, so they can purchase a life insurance policy and then sell it back to the investment company.