What Is A Life Settlement?
Terms that you should know:
- Life Settlement: The transfer of a life insurance policy from the policyholder to a third-party investor for a one-time cash payment.
- Cash Surrender Value: The amount of money a policyholder receives if they cancel their life insurance policy. The total amount received is the cash value of the policy minus any fees associated with cancelling the policy.
- Death Benefit: The money that a beneficiary or beneficiaries would receive upon the death of the insured on the life insurance policy.
What Exactly is a Life Settlement?
When a person no longer needs or wants their life insurance policy, they may be eligible to sell their policy.
- A life settlement refers to the sale of an existing insurance policy to a third party for a one-time cash payment.
- Payment is more than the surrender value, but less than the actual death benefit.
- The seller transfers ownership of their policy to a buyer. All aspects of ownership transfer, including the premium payments and death benefit, meaning that the original policyholder’s beneficiaries no longer receive anything upon the death of the (formerly) insured.
- Some of the reasons why people choose life settlements include retirement, unaffordable premiums, no longer needs their life policy, and emergencies.