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Everything You Need to Understand About Life Settlement

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Life insurance becomes a significant part of this comprehensive plan when you plan yourself financially. There are versatile insurance policies that secure you against dangers in life. Life insurance can be your saviour if you want to leave all your financial assets for a closed one after your death. Still, if you feel that you no longer require the existing policy and want to invest in a new one, or you need urgent cash for something important, you can opt for ‘life settlement’. 

A life settlement means selling an existing policy to a third-party person for an immediate one-time payment. This transfers your current policy to a new party, and you get quick cash in hand. The payment amount you get is more than the surrender value but less than the actual benefit provided by the company. Policy transfer means the transfer of responsibility to pay premiums. Mostly, people who sell their life insurance policies were generally over age 60 as they feel the need to liquidate their money for their retirement plans. 

The policy purchaser now becomes the beneficiary of the policies taking away all the rights from the seller, and he assumes the responsibility to pay all the premium for it. 

Reasons why people choose a life settlement

Sometimes when people cannot afford the insurance policy premium, they might want to reinvest in a better deal and want liquid cash in hand for a new investment. When an insured party cannot afford the policy, they can sell it to another party. There are several prerequisites that, if you consider life settlement, can benefit you. It might help more if you are:

  • Over 60 years of age
  • Have an Insurance cover of $100000 or more
  • Have Accumulated cash value policies. 
  • Have been diagnosed with a life-threatening disease. 

There are several reasons why people want life settlement by selling their policies. Causes may be subjective or personal, but as observed by market trends, some of them are:

  • Retirement plans. It had been a general observation that people who sell their life policies were generally over age 60 – the age of or after retirement. You may feel the need to have some extra cash on you after retirement to fulfil all the plans you have made and enjoy your time.
  • Unaffordable premium amount. Sometimes you may feel that paying the insurance premium is becoming a headache and stresses your financial stability. In cases like these, people usually want to give up their life insurance policies for financial stability and to reinvest in better options. You may feel that you can benefit by opting for a life settlement instead of getting your policy lapsed due to unstable cash flow.
  • Company-executive policies. Life settlement or liquidation may be adopted by companies that pay for the policy of their workers. Someone who is not a part of a company may want to transfer the approach to a third party or a new employee. If they do not do so, there is a chance that their policy lapses with the policy provider.
  • Emergencies. There may be times when you want immediate cash for some emergency. These cases include death and illness in the family, operations or surgeries, accidents, natural disasters, etc. The owner may need a considerable amount of liquid cash to afford the treatment of a close family member, and life settlement is a plausible option as it gives you quick money.  You can sell your policies using a broker in case of emergency. They can immediately do all the paperwork for you and take a small percentage of the commission.

Bottom line

A life settlement is a wise choice if you feel you do not require your life insurance policy further. Instead of unnecessarily investing your money in the premium, you can benefit both yourself and the third party by opting for this solution. 


David Tobin did his degree in psychology at the University of Hertfordshire. He is interested in mental health, wellness, and lifestyle. 

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