If you work with senior citizens, you are well aware of the economic challenges that people can face as they age. Adverse economic events, medical costs, and assisted living expenses can quickly wipe out retirement savings. Fortunately, many seniors have an asset that can readily be turned into cash to pay for retirement: life insurance.

Life insurance policies that insure the life of an older person are highly valuable assets. Until recently, however, seniors had few options to fully enjoy this value while the insured was still alive. Policy loans are sometimes an option, but, as too many seniors have discovered, interest charges and continuing premium payments can quickly devour a policy’s value—and potentially leave the owner with a hefty tax bill. Another option is to surrender the policy to the insurance company. This has the advantage of eliminating premium payments. The cash value received for surrender, however, is often only a small fraction of the policy’s true actuarial value—or nothing at all.

Fortunately, today’s seniors have more options thanks to a financial transaction called a “life settlement.” In a life settlement, the owner of a life insurance policy sells his or her policy to a third-party investor for an immediate cash payment. After the sale, the investor pays all the premiums and collects the policy’s benefit when the insured passes away.

Pros and Cons

The advantages of a life settlement can be summed up in two words: more money. A life settlement eliminates premium payments just like a surrender, and it pays more money to the policy owner. Frequently, the owner is paid four times the policy’s cash surrender value—sometimes even more. Moreover, even policies that have no cash surrender value at all, such as term life insurance, can often be sold. The money from a life settlement can then be used for anything, including medical care, assisted living costs, charitable gifts, and day-to-day expenses.

The disadvantages of a life settlement are primarily related to the nature of the transaction. It is a permanent sale of life insurance, so those who need life insurance in the future may have a difficult time obtaining replacement coverage. While a life settlement is conceptually simple, the details of the transaction can make it hard to tell if one is getting a good deal.

Eligibility

Almost any type of life insurance is eligible for a life settlement if it has a face value of at least $50,000. Low premiums make a policy more valuable, while outstanding loans make it less valuable. Most life settlements involve convertible term and universal polices. Whole life policies are more difficult to sell.

For most policy owners, the key factor in determining their eligibility for a life settlement is the age and health of the person insured by the policy. A life settlement is rarely possible if the insured is a male less than age 68 or a female less than age 72. As a practical matter, any insured under age 75 must have health problems to make a policy a good candidate. These problems do not need to be serious. Chronic conditions such as diabetes and high blood pressure, for example, can be sufficient.

Tips for a Successful Settlement

Seniors who are interested in life settlements should keep the following tips in mind:

(1) Use a professional life settlement broker. A life settlement is a complicated transaction. Seniors should obtain professional assistance for a life settlement, just as they would for selling real estate or drafting a will. While some purchasers of life insurance policies (known as life settlement providers) will make offers directly to consumers, navigating the world of life settlement providers alone is likely to cause a lot of frustration—and yield smaller offers. It is better to retain a professional, licensed life settlement broker to seek offers and negotiate with providers.

(2) Pick a broker that is truly independent. A good life settlement broker will seek offers from all reputable providers, rather than being a “captive” of a small number of providers. Seeking offers from more sources takes time, but it will often result in a much larger payment.

(3) Have Reasonable Expectations About Offers. A life settlement can be frustrating for those who do not understand the process. Because the value of a policy is dependent on many variables—such as the exact age and health of the insured, the terms of the policy, and the insurer’s credit rating, among others—no life settlement broker can give you more than rough estimate of the potential value of your policy. Moreover, because the market for life insurance policies is relatively new and subject to the same fluctuations as other markets, a policy’s value cannot be precisely established even after all the major factors are determined by your broker. There is truly no way to know what a policy is worth on the open market except by seeking offers.

(4) Be Patient. A life settlement can happen quickly under the right circumstances, but it is far more common for it to take several months. There are few ways to speed up the process without reducing the number and quality of offers. Beware of life settlement brokers that promise settlements in weeks, rather than months. These brokers may be cutting corners by seeking offers from only a few providers.  

The Open Life Settlements Advantage

Open Life Settlements is an independent life settlement broker with a unique commitment to consumer disclosure. We provide our clients with personal service and a dedicated broker. We explain every step of the process, including potential drawbacks.

Open Life Settlements charges clients nothing to seek offers for their policies, regardless of our expenses. There is no obligation to accept any offer we obtain. Unlike many brokers, we work with all qualified life settlement providers to achieve the best possible results for our clients. We take our fiduciary duties to our clients seriously, and fully disclose every offer (including our potential commission) made for a policy.

Open Life Settlements and Your Organization

A life settlement can be a lifeline to seniors who face long-term problems funding medical care or assisted living expenses. If you encounter a senior with unwanted or unneeded life insurance that needs cash, be sure to advise them of the possibility of a life settlement—especially before financial needs lead them to let a potentially valuable policy lapse.

Even seniors in no immediate financial distress can often benefit from a life settlement. Seniors should consider a life settlement in any situation in which they would prefer to have more money now rather than a benefit paid at the insured’s death. Seniors often have insurance that no longer serves any vital function. Many retirees still carry large insurance policies that they purchased to protect loved ones during their working years, even though income protection may no longer be needed during their retirement. These policies are often great candidates for a life settlement.

Unfortunately, most seniors are unaware that life settlements even exist. Open Life Settlements is pleased to partner with senior-friendly organizations to increase awareness of this invaluable financial tool. By working with Open Life Settlements, your organization can offer seniors information about life settlements and access to professional brokers with a serious commitment to consumer rights.