How Do Life Settlements Work?

Just like any other asset, a life insurance policy can be sold by one party to another for cash. So very simply, a life settlement is a transaction in which a life insurance policy is sold by one party to another. These policies are sold to a state licensed financial institution.

The purchasing party is an investor willing to pay the policy holder a fee to become the beneficiary of the policy while assuming responsibility for paying future premiums.

As part of the purchase transaction, the investor assumes responsibility for paying all future premiums required to keep the policy enforced. When the insured passes away, the investor receives the death benefit.

 

The Life Settlement Process

Typically the Life Settlement process takes 90-120 days depending on the complexity of the case. Simple transactions can be completed in less time.  O’Donnell Group’s job is to represent the interests of the policyholder and nobody else.  We’ll advise you during each and every step along the way.  The process usually goes like this:

  1. Fill out our “Tell Us About Your Policy” form to get started.
  2. We’ll make a determination as to whether or not your policy qualifies.
  3. If qualified, complete an inquiry packet:
    1. Inquiry Form
    2. HIPPA Form
    3. Broker’s Agreement
  4. We’ll verify insurance and medical status.
  5. We’ll submit your policy to our marketplace for offers.
  6. You review and sign the closing package.
  7. We’ll notify the insurance carrier.
  8. Funds are transferred.

Benefits of Life Settlements

Due to greater regulations and consumer awareness, the life settlement market continues to grow.  Seniors are opting for these kinds of deals for many reasons including relief from costly premiums, liquidating assets as a means to pay for long-term health care, retirement planning, generating substantial cash for children and grandchildren, they simply no longer want or need the policy, and other various reasons.  Instead of simply accepting what the insurer offers for the cash surrender value of your policy, explore the many benefits in a life settlement.

Higher Payouts Than The Policy’s Surrender Value

According to the London Business School, “We find that policy owners selling their policies collectively, receive more than four times the amount they would have received if they surrendered their policies to their respective life insurance companies for it’s cash value.”

Moreover, the Life Insurance Settlement Association (L.I.S.A.) stated that policy owners usually receive about 4 times more than the surrender value of the policy.

A Solution To Long Term Health Care Funding

Forbes August 2016 stated that the federal government announced that premiums for nearly all of its existing long-term health care insurance policies would increase—by an average of 83 percent. In June, the Boston globe reported that the John Hancock Company were sending notices to some of its older policyholders informing them their premiums would be going up immediately— by about 20 percent.

As a result, an increasing number of seniors are using the cash they receive from their life settlements to pay for their long-term health care premiums.

Funding For Travel Plans

You’ve worked hard and sacrificed so much along the way.  So, now is the perfect time to start taking those dream trips that add richness and joy to life.  Whether your dream travel is local or global, many people choose a life settlement to fund travel plans and see the world.

Paying Off Debt

Many seniors are living less robustly than they would like. An article in Senior Livingstates that “Nearly 40 percent of retirees have a problem with their level of debt.”  Many people are learning that a life settlement offers the opportunity to pay off this debt.

Entertainment & Dining

According to SilverCross.com, seniors spend nearly one-fifth of their income on dining out and entertainment.  Life Settlements offer seniors funds so they can keep enjoying the lifestyle they’ve worked so long and hard to acquire.

Pets And Hobbies

The National Center for Policy Analysis reports that seniors aged 75+, hobbies and pets account for a growing percentage of monthly expenses – to the tune of nearly six percent annually since 1990.

Cost Of A Life Settlement

How much does a life settlement cost and how much time does it take?

In short, there is no cost.  In a life settlement transaction, the policy owner only pays a commission when the policy is sold.   For a life settlement involving the sale of a Universal Life or Whole Life policy, we receive a percentage of the final settlement price (the price paid by the buyer to the seller).

For a life settlement involving a Convertible Term Life policy, our compensation comes from the final settlement amount or from the standard agent commission paid by the insurance carrier for the conversion.

Typically the Life Settlement process takes 90-120 days depending on the complexity of the case. Simple transactions can be completed in less time.

What Policies Are Most Valuable?

F.J. O’Donnell Group will consider any life insurance policy.  However, we have found the most appealing policies in the life settlement market are:

  1. Universal Life
  2. Whole Life
  3. Convertible Term Life

Policies with conversion privileges have become highly valued. Policies are most likely to be sold when:

  1. The policyholder is 55+ years old.
  2. The policyholder has health impairments.
  3. The face amount of the policy is $100,000.00+.
  4. The policyholder has moderate to significant health impairments.

Life Settlement Market On The Rise

Over the last few years, The O’Donnell Group has seen an increase in demand for life settlements.  In fact, Google is reporting that searches related to the life settlement market are on the rise again as well.


In fact, nearly all 50 states have some kind of life settlement regulations in place to increase transparency and protection for those policyholders, especially seniors, considering a life settlement transaction.

The change in the regulatory environment has seemingly lead to an increase in seniors looking into the life settlement option and has also lead to an increase in the amount of reliable informational resources available to consumers to reference the life settlement market.

 

The Life Settlement Option Becoming More Common

Life settlements are still very misunderstood and most policyholders are still unaware that the option even exists!  However, it is gaining traction among seniors looking for a better payout than merely accepting the cash surrender value or even worse, lapsing the policy altogether.

In fact, a couple out of California who was unaware of the life settlement option recently successfully sued their insurance providers for failing to disclose a life settlement as an option.  As a result, the couple was forced to reduce the size of their life insurance policy twice from the starting point of $7.2 million to $2 million because the premiums continued to rise and they could no longer afford to keep the policy in force.

The couple claimed that their insurance provider (Lincoln National Insurance Company) offered only two options to them. They could choose to surrender their policy for it’s cash value or they could pay higher premiums for the policy. No mention was ever made of their ability to sell their policy to a third party.

Rightfully so, the judge agreed with the plaintiffs that the insurance provider had a duty to disclose this option to the policyholder in a ground-breaking decision that could very well reshape how insurance companies treat their customers in the future.

Knowledge is certainly power and the more you know about your options when it comes to insurance policies and life settlements, the better prepared you will be to make an informed decision about your life insurance choices.

Life Settlement Considerations

Life Settlements Are Not For Everyone

The life settlement market is on the rise.  An increasing number of policyholders are realizing life settlements can yield a much higher payout than surrendering or lapsing your policy. However, life settlements may not always be the best fit for everyone. We always recommend you speak with a financial planner when considering selling your policy.

O’Donnell Group is committed to making you aware of all your options. So, even if it means we don’t make a profit, making people aware of options like accelerated death benefits is still our highest priority.

Reasons To Not Choose A Life Settlement

There are many reasons as to why someone would opt to keep their policy or choose a route other than a life settlement transaction.

  1. You May Not Qualify. Firstly, there are many reasons that your policy doesn’t qualify for a life settlement. If you’re under the age of 55 or the death benefit is under $100,000.00, it is unlikely your policy would be attractive to a potential buyer.
  2. Transparency Requirements. When you sell your life insurance policy, your personal information including health records will now be in the possession of the new owner.
  3. Public Care Requirements. In some cases, proceeds from a life settlement are so much that the beneficiary can jeopardize eligibility for public aid and other government benefits.
  4. Creditors. Using proceeds to pay off debt is a common reason choose the life settlement option. But for some, the idea that the proceeds are subject to creditor’s claims can be a deal-breaker.
  5. Tax Obligations.  The IRS sees at least some of the proceeds as taxable. Consider the tax of a life settlement before choosing the life settlement option.
  6. The Original Death Benefit.  Finally, there is no greater benefit than the original death benefit. If you want the beneficiary to see the most value of the policy, then keeping the policy might be the best option.

Other Options You Might Consider.

Our job at O’Donnell Group is to present all of the options and not pressure someone into a life settlement if there are better options available for you.

  1. Use the cash surrender value or take out a loan on the policy.
  2. Seek an accelerated death benefit, if available.
  3. Assign the policy as a gift or donate it to charity.
  4. Convert a term policy to a permanent insurance policy.
  5. Reduce the death benefit with a lower face value and lesser premiums.
  6. Lapse or surrender the policy.

Are Life Settlements Right For Me?

Yes, life settlements come with many potential benefits.  But, as with any financial strategy, you must consider all of your available options in addition to the risks involved.

Consider the following questions:

  1. Did your financial needs change?
    1. As the cost of long-term medical care rises, many folks find their financial needs changing.  A life settlement could be right for you.
  2. Do you want to reduce your monthly expenses?
    1. Many policyholders simply no longer want to pay the monthly premiums, a life settlement could be right for you.
  3. Is your current life insurance policy too expensive?
    1. You might consider lowering the death benefit to reduce your monthly premium or consider learning if your policy qualifies for a life settlement.
  4. Are you thinking about letting your life insurance policy lapse? Or take the surrender value?
    1. If this is the case, absolutely consider a life settlement before lapsing or surrendering.  It couldn’t hurt!
  5. Have you been diagnosed with a life-threatening illness?
    1. If so, your policy has a strong likelihood of being qualified for a life settlement.
  6. Could a life settlement fund your retirement?
    1. Many are finding that selling their life insurance policy is a good means for retirement funding.
  7. Are you looking for financial peace of mind?
    1. Funds from a life settlement can help you achieve a peace of mind regardless of your current state of affairs.

Life Settlement Calculator

A basic life settlement calculator provides an instant life settlement quote. Get an honest assessment of your life insurance policy and your options on the secondary market. Instantly discover if you can sell your policy or if it makes more financial sense to keep it.

Life Settlement Calculator