Surprising Facts About Life Settlements You Didn’t Know
Life settlements can be a powerful financial tool, but there are surprising facts about life settlements you didn’t know that could help you maximize the value of your policy. While most people understand the basic concept—selling a life insurance policy for a lump sum—there are many hidden nuances to this process. Whether you’re exploring this option for the first time or looking for deeper insights, these unexpected facts might surprise you.
1. Term Policies Can Qualify for Life Settlements
Contrary to popular belief, you don’t always need a whole life policy to benefit from a life settlement and many additional types of policies can qualify. Many term life insurance policies are eligible if they are convertible or renewable. This means that even if you thought your term policy had no cash value, it could still generate a significant payout in a term life insurance settlement.
2. Payouts Are Often Higher Than Cash Surrender Values
If you’re considering surrendering your policy back to the insurance company, think again. Life settlement offers are typically much higher than the policy’s cash surrender value. This makes it an excellent alternative for those who no longer need their coverage but want a better financial outcome.
3. Policyholders Can Retain a Portion of Their Death Benefit
One lesser-known option within life settlements is called a retained death benefit. With a retain-a-portion settlement, you can sell your policy while keeping a portion of the death benefit for your beneficiaries. This allows you to access immediate cash while still leaving something behind for your loved ones. Not everyone will qualify for this option, but it’s worth asking about if you are interested in keeping part of the death benefit.
4. The Age and Health of the Insured Matter Most
While people often assume life settlements are only for the elderly, the reality is more nuanced. Policies owned by individuals with significant health changes are often more valuable to investors, even if the policy insured is younger than typical candidates. This can open up opportunities for those who might not meet the usual age criteria. Most people can start looking into life settlements at around age 65 or older, but younger individuals may qualify based on health.
5. Life Settlements Are a Growing Financial Trend
The life settlement market has expanded rapidly over the past decade, with increasing numbers of policyholders choosing this option. Investors are drawn to the reliability of life insurance as an asset, creating more competition and better offers for sellers.
6. Proceeds Are Often Taxable
While life settlements provide much-needed liquidity, it’s important to know that the proceeds are often subject to taxation. Depending on your policy type, purchase price, and gains, you may owe taxes on the amount you receive. Consulting a trusted tax advisor is essential to understand your obligations. In most cases, viatical settlement proceeds are not subject to tax.
7. It’s a Heavily Regulated Industry
The life settlement industry is governed by strict regulations to protect consumers. These rules vary by state but generally ensure transparency, fair pricing, and the ethical treatment of policyholders. This makes it a safe financial transaction.
8. Life Settlements Can Help Fund Healthcare or Retirement Costs
Many people turn to life settlements to cover major expenses like medical bills, long-term care, or retirement needs. The lump-sum payment can make a significant difference for those facing financial challenges during their later years. Many policyholders also choose to use part of the funds for fun excursions like a trip with family or a cruise.
9. Life Settlements Are Not Just for Individuals
Businesses that own key man life insurance policies can also explore life settlements as an option. If a business no longer needs the coverage or has experienced changes in ownership, selling the policy can free up capital for other needs.
Life settlements are more versatile and beneficial than many people realize. By understanding these surprising facts about life settlements you didn’t know, you can make more informed decisions about your financial future. If you’re considering selling your policy, take the time to explore all your options and consult with a trusted advisor to ensure you get the best possible outcome.
To find out if a life settlement may be an option for you, please give us a call at 800-727-7654.
