How the Process Works
If you decide to sell your life insurance policy to a Life Settlement Provider, you will enter into a Life Settlement contract with them. The policy owner agrees to accept a cash payment in exchange for your life insurance policy. The amount that you receive will be less than the face amount of the policy which would have been paid upon your death. For example, you might agree to accept a $50,000 cash payment now for a policy with a death benefit of $100,000. The provider company takes over ownership of the policy and is responsible for all future premium payments.
Policy owner receives an immediate lump sum cash payment at the time the ownership of the policy is changed to the provider company.
The Provider Purchasing your Policy would:
- Become the new owner of your policy
- Name a beneficiary
- Begin paying premiums on the policy
- Collect the full death benefit upon the policy maturing
There are Four Basic Phases Required to Complete a Life Settlement Transaction.
Qualifying to Sell Your Policy (Underwriting)
The Life Settlement Provider will need information regarding your age, health and life insurance information; type, face amount, premiums, etc. Provider Company will send forms to you that provide them permission to access your medical and insurance information.
- Medical record release form
- Authorization to contact your insurance company
- A life settlement application
If you apply to more than one Life Settlement Provider, each Provider will contact your doctor for medical records and your insurance company for policy information.
Calculating the Offer
The Life Settlement Provider uses the authorization you provide to secure medical records and life insurance information in order to determine the value of your policy. Many factors are considered to determine the value of your policy:
- The medical condition of the insured. Generally, the shorter the life expectancy of the insured, the higher the value of the policy
- The amount of life insurance coverage
- Loans or advances, if any, previously taken against the policy
- Amount of premiums necessary to keep the life insurance policy in force
- The rating of the issuing insurance company
- Prevailing interest rates
- State laws that may regulate the amount paid for a policy
Closing the Agreement
If you accept the offer from the provider, a purchase agreement is forwarded to you or your advisor.
- Purchase agreements will include many documents in order to execute the transaction and comply with insurance and state laws. Life settlements are a highly regulated transaction requiring many forms and signatures to comply with regulations.
- The purchase agreements and forms are returned to the Provider for its signature.
- The Provider will put the cash payment owed to you in escrow and begin the process of changing ownership of your policy at the life insurance company.
Receiving the Payment
Once the insurance company notifies the Provider that the ownership of the life policy has changed to the provider company, payment for the policy is released to you.