Senior Life Settlement Advantages

Explain Senior Life Settlements

You may have been approached about a settlement on a life insurance policy, but may not really understand the basics of this transaction of if you (or somebody you help care for) would qualify. I wold like to explain a little bit about selling life insurance for cash. In general, to qualify for a senior life settlement the insurance should:

• Cover a person at least 65 years old. This may vary slighty.
• Have a face value of $100,000 or more (we have seen exceptions to this).
• Be a permanent policy, or a policy that can be coverted to a permanent policy. In other words, a term policy must have an option to convert to whole or universal life.
• Be at least 2 years old.

In general, an investor will offer to pay cash in return for ownership of a qualified policy. The previous owner may get 10 – 60 percent of the actual face value of the policy which should be much higher than the policy surrender value.

How Does The Seller Benefit From A Senior Life Settlement?

The benefits of a senior life settlement to the seller is the ability to get cash to use now, rather than having to pass that cash on to beneficiaries. Sometimes this is a fair decision for families. It is also common looked at by businesses who may have coverage on retired employees that they no longer need to keep for business reasons. Instead of just letting the policy lapse or accepting a small surrender value payment, the individual or business can collect a lot more in exchange for the policy.

Why Do Investment Companies Buy Life Insurance From Seniors?

The investor, of course, will usually agree to pay future premiums (if any), because they want to be sure the policy is kept in force. This sounds a little grim, but they do collect when the insured person passes away.

 What If The Senior Still Wants To Be Covered?

OK, the obvious disadvantage to this arrangement is giving up a policy that is already in force. Since the covered person is now older, and possibly in worse health, new coverage may be more expensive and hard to get.

• Sometimes the investor will offer to buy a portion of the policy, but still agree to leave the beneficiaries with a share. This may reduce the value of the settlement, but it may also provide a good solution. For example, let us say that Mr. Jones has a $200,000 whole life policy. He may sell 75% of the face value ($150,000), but retain 25% for his named beneficiaries ($50,000).
• It is often true that retired people will not need as much coverage as they did when they were younger. They may sell the entire policy, but find they can get a smaller face value policy to cover final expenses or leave money to a charity, etc. They can use part of the settlement to fund this new policy. So let us say that Mr. Jones agrees to sell his $200,000 policy for $100,000 in cash which he can get paid today. He may choose to take $12,000 to purchase a $50,000 life insurance policy to cover his needs.

PLEASE NOTE: Any dollar figures or numbers I used in an example were purely made up to help illustrate transactions. They are not meant to represent any one particular policy or life settlement. As you know, the real numbers will depend upon the policy type, the life insurance company or investment company, and of course, the age and health of the individual involved.

Also learn more about why seniors buy life insurance.

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