Settlement funding questions, answered straight

A life settlement is the sale of an existing life insurance policy to a third-party buyer for a lump sum of cash, usually more than the cash surrender value and less than the death benefit. The buyer becomes the owner and beneficiary, pays all future premiums, and collects the death benefit later. After the sale, you have no more premiums to pay.

Over time, the need for a policy may disappear. A spouse may have passed away, the house may be paid off, the children may be on their own, a business may have been sold, or you may have retired. Sometimes the premiums simply become a drain on the budget. Clients use the proceeds to fund retirement, pay for long-term care or medical costs, pay off debt, or improve their quality of life. Many people think lapsing or surrendering is their only option, and that can leave tens or even hundreds of thousands of dollars on the table. Proceeds may be taxable, so speak with a tax professional before accepting an offer.

If you surrender, the insurance company cancels the policy and pays its cash surrender value, if it has one. Surrender charges may reduce that amount, and it’s often a small fraction of what the policy could sell for. Term policies have no cash value, so surrendering one pays nothing. If you let a policy lapse by stopping premium payments, coverage ends and you typically receive nothing. A lapsed policy usually can’t be sold, so review your options before you miss a payment.

Most buyers look for policyholders who are 65 or older, or younger people with significant health conditions. You don’t need to be seriously ill to qualify, and policies usually need a face amount of around $100,000 or more. Almost any type of policy has the potential to be sold. Universal life is the most common, because buyers can keep premiums close to the cost of insurance. Convertible term is a close second, since a buyer can convert it to permanent coverage without a medical exam. Non-convertible term can sometimes be sold, but usually only when the insured has health issues. Whole life can be sold or surrendered to the insurer for its guaranteed cash value, and we’ll compare both. Second-to-die policies can be sold too, and often bring more if one spouse has already passed away. First-to-die policies are rarely purchased by buyers, so surrendering to the insurer or using a policy split rider, if your policy has one, are usually the main options.

Buyers weigh three main things: the premiums needed to keep the policy in force, the insured’s life expectancy and the face amount. Lower premiums, a shorter life expectancy and a larger face amount generally mean a higher offer. As a percentage of the death benefit, universal life policies typically sell for about 15% to 50% or more, convertible term for about 10% to 30% or more, and whole life for about 10% to 25% or more. Second-to-die policies typically bring about 10% to 20% with both insured living, rising to 25% to 40% or more if one has passed away. Every offer depends on your specific policy and health, so these are general ranges, not a quote.

A viatical settlement is the sale of a policy by someone with a terminal or chronic illness, often with a life expectancy of two years or less. It gives the policyholder cash for treatment, care or living expenses. A life settlement typically involves a senior who may be in good health. The tax treatment can differ, so check with a tax professional.

It starts with a free consultation about your policy and goals. You then provide policy details and authorize the release of medical records, and we present your policy to multiple licensed buyers. You review any offers with no obligation. If you accept, you sign state-approved contracts, your beneficiaries acknowledge the sale, and the funds are released once ownership transfers. Call (480) 825-8103, Monday through Friday, 8 AM–4 PM, to get started.

There’s no charge for the consultation or policy review. If your policy sells, our compensation is disclosed in writing in the sale documents, and you sign that disclosure before closing. You’ll see every offer, term and cost before you commit to anything.