A life insurance policy provides more protection and financial gain to the policy holder than many people believe. While it is incredibly helpful for your beneficiaries in the event that you suddenly pass away, there may be times where it no longer makes financial sense to continue to pay into the insurance premiums. You may also fall onto financial hardships and need a lump sum of money. In these circumstances, you may want to consider a life settlement.


Defining a Life Settlement

Simply put, a life settlement is the process by which a life insurance policy holder sells their policy to a third party in exchange for a lump sum of money. The dollar amount to be received by the policy holder lies somewhere between the total death benefit of the policy and the cash surrender value. In other words, you will forfeit the original amount promised to your beneficiaries should you pass away for a smaller lump sum that you will receive while you are still alive.

Why Choose a Life Settlement?

There are a number of reasons a person may choose to sell their policy. When certain medical diagnoses are given to the holder, the policy may become null and void. You may also reach an age that closes the policy and prevents your beneficiaries from receiving the funds when you do pass away. Other life changes can include the death of a spouse or the advanced aging of your children. Your reasoning may have nothing to do with you at all, but if your insurance company goes out of business you may be forced to sell in order to recoup any lost benefits. The most common reason, however, is a financial hardship. Life changes could render the premium payments too difficult to make, so rather than allowing the policy to lapse, many look to sell their policy to help them get back on their feet.

The Process

If you feel a life settlement is right for you, the first step is to find a company that can handle the paperwork and selling process of your policy. This company will help you to gather the information you need to provide, including health records and other information about your policy. They will take this information to various brokers, who will work hard to find the best prices by shopping your policy around to potential providers. The providers will be the ones to purchase your policy and will work with brokers to understand the unique circumstances behind your policy. Brokers will work with your settlement company to make their recommendations on which provider you should choose. Bear in mind that brokers receive a commission for their work, so they will do everything in their power to ensure you are receiving the best possible payout on your policy.

A life insurance policy is a wonderful investment because it can be flexible enough to benefit you if your life circumstances take an unexpected turn. Understanding your options when you need to consider selling your policy can be exceedingly helpful during financial and/or health-related hardships.