An option that has become more popular as a way to supplement depleted finances is the secondary life settlement market. All life insurance policies, including term life, are eligible for settlements.

How it Works

The way this works is that the existing life insurance policy is sold from the current policy owner to a third party via the secondary institutional market. The seller then receives a onetime cash payment. This payment is less than the policy’s face value but more than the cash surrender value (CSV).

In addition to being relieved of all future premium payments, the seller often receives as much as 3 to 5 times the CSV.

The Life Settlement Process

Here are some points to ponder if you’re considering one of these:

• It takes four to six month to complete
• Policy type, age, gender, life expectancy, face amount, insurance carrier rating, projected annual premiums and state of residency are a few of the factors taken into account
• An application is completed by the seller
• Medical records are ordered
• A life expectancy report is prepared
• The policy is put out to bid to institutional investors
• Bid are received and presented to the seller
• Closing documents are prepared upon offer acceptance
• The escrow is opened and the funds are deposited
• The change of ownership information is submitted to the insurance carrier

In case you’re wondering about the impact of this on the insurance carriers consider this; 88% of universal life policies and 95% of term life policies never payout a death claim at all.

Photo via Phillie Casablanca