Life insurance policy owners often face questions like “Who will buy my life insurance policy?” and “What is the process involved?” and many others. If you’re one of them, then you have nothing to worry about. This article explains the process of selling life insurance policies along with its advantages.
In the process of a life settlement, the policy owner sells their life insurance policy for an immediate cash payment to a financial institution. Upon buying, the buyer of the insurance policy is responsible for paying the future policy premiums and is eligible to receive the full death benefit of the policy upon the death of the insured.
The concept of life settlement took birth in 1911 in the Supreme Court in the case of Grigsby vs. Russell. Justice Oliver Wendell Holmes established a groundbreaking decision and declared life insurance as saleable assets. That is, the policy owner was given the legal right to sell his insurance policy in exchange for cash.
In addition to this, a life insurance policy was established as transferable property, and the policy owner was given the legal rights to use the policy as collateral against a loan, to borrow money from the policy, and also to change the beneficiary of the insurance policy.
Due to the rise of the HIV virus in the 1980s, this process gained popularity. HIV infected terminally ill patients began to sell their life insurance policies for an amount greater than its cash surrender value as they no longer needed them. This began to be known as “Viatical settlements.”
The life settlement market has grown financially strong and at a steady rate over recent years and is valued at around several billion US Dollars.
Policy owners can choose to sell their life insurance policies for several reasons. Some of them are-
- Policy owners without any dependents such as spouse/children (already financially independent) can choose to sell their life insurance policy.
- Policy owners can choose to sell their term policies that are closer to their expiration date.
- When the life insurance policy does not perform as expected, its owner can choose to sell it.
- If the policy owner wishes to upgrade their current life insurance policy, then they can choose to sell it and use the money to buy a better one.
- If the policy owner can no longer afford to pay the life insurance policy premiums, then they can choose to sell it for cash instead of letting the policy lapse.
- Policy owners who are over-insured can sell their insurance policy.
- Policy owners who are over 65 years or suffering from chronic diseases may choose to sell their life insurance policy if they no longer need it.
- Policy owners can sell their life insurance policy and use the extra money to cover personal expenses like long-term care, to pay medical bills or pay for expensive surgeries.
Life settlement has several advantages such as:
- The transactions involved in the process of a life settlement are highly regulated.
- Policy owners can enjoy a relaxing retirement life as they get extra money from the life settlement.
- Life settlements typically offer a high and attractive return (usually in the range of 10% to 14%)
- The life settlement market has grown steadily in recent years and is a promising one.
- Policy owners can sell their insurance policies and gain access to a lump sum cash payment almost instantly.
- Policy owners can get rid of the burden of paying expensive future policy premiums.
- Senior citizens can use the extra cash obtained from selling their life insurance policies to live a comfortable retired life (buying a retirement home or fund dependants needs) and also, use it to cover expensive medical bills and surgeries.
- Policy owners can sell their life insurance policy before it lapses due to changes in tax law/estate.
There are certain steps that policy owners need to follow before selling their insurance policies. They need to identify potential buyers and choose the one that meets all their requirements. They should talk to an experienced financial advisor and seek their advice to determine if they are eligible for a life settlement. Such advisors can also clear any doubts about the benefits and risks that are encountered in the process of selling a life insurance policy. I hope this article helps you to take the right decision and understand the policy of life settlements clearly. Thanks for reading!