A life settlement is the sale of a life insurance policy or certificate issued on the life of a person, who does not have a catastrophic or life threatening illness or condition that is likely to result in death within 24 months, for a dollar amount that is less than the policy’s face value.
The person who is insured under the policy is called a “life settlor”. This person is usually the owner of the policy, but does not have to be the owner of the policy.
Only the owner of the policy has the right to sell the policy; however the owner cannot sell the policy without the beneficiaries’ consent.
The entity that buys the policy is called a life settlement provider, additionally, there are persons called brokers or provider representatives, who help with the sale of the policy. A life settlement offers you the opportunity to receive a portion of your policy’s death benefit while you are still alive.
What other things should I know about a life settlement contract?
Some things that may be affected if you enter a life settlement are:
Because of the above, you should contact an attorney, accountant, estate planner, financial planning advisor, tax advisor, social services agency, your insurance company, or agent, as applicable, to find out what effect selling your policy will have on you.
Are there other options available besides selling my policy?
Your insurance company may offer options, such as:
Before entering into a life settlement, you should contact your insurance company or agent to see what options are available.
How will I know if my policy includes extra coverage like accidental death, future increases in the death benefit, or covers other family members? Do these affect my settlement?
Some policies contain extra coverage. You may want to contact your insurance company or agent to see if your policy contains a provision or rider providing extra coverage.
If your policy includes a benefit for accidental death, the additional death benefit may not be included as part of your settlement. However, the additional death benefit may remain payable to your beneficiaries or your estate.
If your policy provides future increases in the death benefit, you may want to ask how much the provider is paying you for the purchase of this benefit.
If your policy is a joint policy, or provides coverage on the lives of other family members or anyone other than yourself, there may be a possible loss of coverage.
Life Settlements FAQ – What If I Die Shortly After Selling My Policy?
Life Settlement FAQ – What if I Change My Mind?
Life Settlement FAQ – When Will I Get My Money And From Whom? And What Happens After?
Life Settlement FAQ – Is My Information Private & Confidential?
Life Settlement FAQ – Broker or Provider Representative?
Life Settlement FAQ – Do I have to sell all of my policy?