How to Sell Your Life Insurance Policy
Welcome to Life Settlement Option, a broker solution that helps educate clients on the life settlement market while offering to test the market for free. We also provide free appraisals.
In this article I will explain how to sell your life insurance policy, the life settlement market, the role of a broker, and how an investor will analyze your policy.
To cover some basics, a life settlement is the sale of an existing life insurance policy to a 3rd party investor. In a settlement, the investor typically pays a lump sum of cash now in exchange for ownership of the policy. The investor assumes all future premiums and will also collect the death benefit upon maturity of the policy.
The law that allows people to transfer ownership of a life insurance policy to a 3rd party was passed in 1911 by the U.S. Supreme Court, but the life settlement market didn't begin until the 1980s during the AIDS epidemic when people needed access to money for health and living expenses. Since then HIV treatments have improved drastically, but the need for life settlements have continued as more and more people find themselves living longer than expected and can't afford to continue paying premiums on their policy, or simply don't want to anymore.
The life settlement market has grown significantly into a multi billion dollar industry with a wide variety of investors, and regulated by the department of insurance in each state.
Many people have sold their policies in a life settlement sale and come out the other side with cash in hand (2)
How to Sell a Life Insurance Policy
If you're wondering how to sell a life insurance policy, there are a few basic requirements that need to be met in order for your case to qualify. To do a life settlement the insured must be age 65 or older, and the death benefit on the policy must be at least $100k or more. If the insured has a terminal illness, they will be considered at any age, but generally speaking, when someone is too young and healthy it is considered too long for an investor to have to wait to get their money back plus interest. The policy also needs to have been in-force for at least 2 years in order to sell it to exceed the suicide and contestability period that's required on all contracts.
The process begins with collecting some information about your policy, age, and health. With some top line information, as a broker who's seen many cases, I can usually tell pretty quickly if a policy will gain the interest of investors, and approximately how much we're likely to receive in offers. The best way to get started would be to fill out the free appraisal form on this page, and I'll get back with you promptly to discuss your possible value and determine next steps.
Once we've determined that it's worth testing the market for offers, we will order an in-force illustration with minimum level premiums to age 100 with a level death benefit, as well as the last 5 years of medical records from your primary care physician and any specialists you've seen such as an oncologist, cardiologist, etc. Once we've collected the necessary data, I will present your case to a wide variety of investors. They will need about two weeks to process underwriting and get approval from their funds to make an offer.
Once we begin hearing from investors, some may pass on the opportunity while others may make a bid. If we only get one bid it's possible we may be able to negotiate for more, but hopefully we get multiple bids which gives us more leverage to negotiate. After a bit of back and forth and stretching budgets as much as possible, once we feel we've reached the limit you will decide whether or not you want to accept.
If you do decide to accept, the deal goes into the contract and escrow phase, which is similar to selling a home. Contracts are drawn up and legal due diligence is done to ensure both the seller's family and the buyer are protected. The settlement proceeds are held in an escrow account until requirements of both parties are met. A life settlement is almost never an instant transaction, but rather a process of reviewing information and making bids. Some investors will move quicker than others if you're in a time crunch, but the process is important to protect all parties involved.
If you're considering selling your life insurance policy due to terminal illness or because your permanent life policy has little cash value and you can't afford the premiums, talk to your insurance agent or financial advisor to go over the process including any associated fees or taxes. (1)
Potential Issues
Things that can trip up a settlement include things like past divorces or bankruptcies where the policy might have certain obligations to other parties. The new owners want to purchase the policy free and clear, and certainly do not want any parties coming after them expecting to receive the death benefit.
Once the policy is determined to be cleared for the settlement, the change of ownership and beneficiary forms will be submitted to the carrier. Once it is officially documented that the ownership has changed, the settlement funds will be released to you via wire transfer or live check from the escrow account. Up until this point the policy is still yours throughout the entire process, and depending on which state you live in you may be able to reverse the settlement up to 15 days after receiving the settlement. The laws in each state vary slightly.
Once clients receive their settlement, the deal is considered done and clients are always satisfied once they receive their settlement. While freak accidents can occur, it is rare that the insured passes shortly after doing a life settlement, so most parties complete the deal feeling good about it.
Doing a life settlement isn't for everyone, and if you need the coverage and can afford it, by all means you should keep your policy. For everyone that does a life settlement, they are happy that they did it. Once they receive the money they are happy to be released from the financial burden of their life insurance premiums, and now have a lump sum of cash which they can use towards any personal needs. Perhaps they want to take a nice vacation, buy a new car, remodel their kitchen, hire a care assistant, or distribute wealth while they are still living.
It is possible to get a life settlement offer on your own, but it is always advised to get multiple offers before accepting one. This is because the life settlement market varies from investor to investor. One group may be trying to build up their portfolio with a certain type of case while another is looking for cases like yours. The first group may offer $20k while the second may offer $50k. And with multiple investors looking at it, you may reach a settlement of $80k. Had you only gone to the first investor, you may have been happy with the $20k, especially if your policy was about to lapse, but would have left $60k on the table by not working with a broker who can get you multiple offers.
I'm a DIY guy myself and occasionally fix things on my car or house to save money, but also know when it's worth it to hire an expert or bring it into the shop. Unless you're an expert on the life settlement market, your best bet is to work with a life settlement broker who will bring your case to a wide variety of investors and negotiate for the highest offer. Even though they receive a commission from the buyer, you're likely going to receive more working with them, and sometimes significantly more, so it's worth every penny to have a broker work on it for you.
How to Sell My Life Insurance Policy?
Clients often search for - how to sell my life insurance policy, and the good news is as a life settlement broker I'm here to help you understand how to sell your policy and do most of the work for you. I'm your advocate, and it's in my best interest to help you get as much as we can for your policy. We need to prepare your case to make it as predictable and as attractive as possible for investors to review it. Learn more about who does a life settlement broker represent.
With consideration to age, an investor is trying to predict how long it will take for them to get their initial investment back while they also need to calculate how many future premiums they're going to have to pay before they're likely to receive their return on investment. While it sounds odd to predict someone's life expectancy, they are simply calculating risk when trying to understand if purchasing a policy is likely to be profitable or may even be a loss. Once they buy policies, some will mature earlier than expected while others will take longer than expected and end up being bad investments. The two counterbalance each other, and with a large portfolio of policies, hopefully the fund will perform well enough to keep capital coming for years ahead. Some early investment funds went under when they took on too much risk and offered too much money for policies. It's reasonable to say that the life settlement market today is largely fair, and while not every offer is a good one, seeking out multiple offers should eventually yield a reasonable offer.
So to determine that life expectancy, or approximate amount of time someone is likely to continue living, underwriters will review your last 5 years of medical records to get a current picture of your health and what concerns you may be facing. If you have none it makes it challenging to predict your life expectancy, and certainly if you're 70 and running marathons with no health issues, you very well may live to 100, and that's too long for an investor to consider buying your policy.
On life expectancy lengths, while shorter ones tend to get a larger percentage of their death benefit, we occasionally get offers for people who have as long as 20 years. Much longer than that and it becomes too long for an investor to wait to get their money back. How much your future premiums are will help determine whether or not it is a good investment.
Many clients figure out the life expectancy game pretty quickly, and will communicate their worst possible outcomes to me. While I'm your advocate, the only information that is considered in the underwriting is your medical records. There's no health exam, and no interview, so if your health isn't great and you haven't been to the doctor in the past year, I would recommend scheduling at least a physical so we have a recent picture for your case. With medical records, we always say the more documentation you have of your current ailments the better. We don't want to under represent any serious concerns as it may affect how much an investor is willing to offer.
Some clients mention serious health concerns of the distant past, meaning more than 5 years, and in some cases it's worth having records older than 5 years, but the reason 5 years is the general limit is because if a health concern is not documented within the past 5 years then chances are you've recovered from it or have found a way to live with it. An example of this might be a heart attack from 10 years ago. If you haven't had any significant heart issues since then, you've likely adjusted your lifestyle to greatly reduce the risk of another heart attack. Another might be a stroke from 15 years ago. While a stroke is considered serious, if you've lived 15 years since then you've either fully recovered or found a way to live with some limitations, so it won't be considered anymore as a health risk.
Alternatively, if you don't have many health concerns but your policy is priced fairly well, we do work with non-med funds meaning they will skip underwriting and crunch numbers based on their own investment methods to see what they might be able to offer. These groups tend to buy larger policies as the margins for a $100k policy start to become fairly slim with a really long life expectancy.
When it comes to how your policy is priced, it's surprising to find how much life insurance policies can vary from one person to another. There are over 800 life insurance companies in the United States, and while all of their contracts will be honored, some of the big names in the industry tend to be priced more competitively while many of the smaller carriers seem to fill a specific niche, and are priced much higher.
Another determining factor is your health rating when you started the policy. If you were in great health back when you first applied for your policy, your policy might be very attractive to buyers when your premiums are low. Unfortunately many older folks' policies have pretty expensive premiums, and an investment on a policy could go from profitable to a loss just by miscalculating a life expectancy by a couple years.
If you have a $500k life insurance policy, have a 10 year life expectancy, and your premiums are $40k a year, that means the investor is likely going to have to pay $400k in premiums plus the settlement amount that they paid you, and also the interest needed to account for the time value of money over 10 years. These kinds of numbers can make a deal seem pretty tight. On the other hand if you have a 5 year life expectancy, the investor would expect to pay $200k in premiums leaving a lot more room to pay your settlement and make the interest needed to make the deal work.
The most common types of policies sold are universal life policies. Whole life can also be sold, and surprisingly convertible term policies as well.
Most term policy owners don't realize that they can convert their term policy to a permanent form of life insurance such as whole life or universal life. This means whatever your health rating was when you got your term policy, they will automatically issue you a new permanent policy regardless of what health problems you've developed since applying. The "conversion" deadline will be identified in your original contract, or you can simply call your insurance carrier and ask if your policy is still convertible.
How to Sell Life Insurance Policy
If you're interested in seeing your life insurance settlement options offers, the best place to start would be by having your case reviewed by a broker, and hopefully you choose us. We're excited to help you get started, and have had nothing but satisfied clients whether they settled or not. So go ahead and fill out the free appraisal form on this page or give us a call at 213.784.1481.
Zack Taylor
4 years in life settlements