How Do Life Settlements Work?
A Life Settlement, sometimes referred to as a Senior Settlement, is the sale of an existing life insurance policy to a licensed third party Settlement Provider. The proceeds of the sale will come in a lump sum of cash and will always be for more than the cash surrender value, but less than the face value/death benefit of the policy. In some cases, depending upon life expectancy, as much as 70% of the face value of the policy. The Settlement Provider becomes the owner and beneficiary of the policy and takes over the obligation for payment of future premiums.
A Life Settlement is a time value of money equation. The Funder bases the offer on the probable life expectancy of the insured and the projected cost of the insurance premium during that period. Naturally, the longer the life expectancy the lower the offer. Hence, the older the insured the higher offer. Overall health of the insured can impact the offer as well. A Life Settlement involving someone with significant health issues, 24 months or less of life expectancy, is referred to as a Viatical Settlement.
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