Selling your life insurance policy for a life settlement is a convenient option when you need instant cash. However, there are certain things that you need to know before you decide to dive right in. Here are a few points that would educate you about certain aspects related to a life settlement.
The very first thing that would actually let you progress or even decide whether or not you can get a life settlement is the criteria involved. Now, there are different kinds of policies and not all policies are eligible for a life settlement. If your policy is a universal life policy, whole life policy, or a convertible term life policy, you can get a life settlement.
The policy should have a death benefit value of at least $100,000 to be considered by the broker, life settlement provider, or buyer for a life settlement transaction. Also, you should have owned the policy for a certain amount of time. This is generally something that the state decides.
A few other things to know is that only a policyholder who is 65 years or older can be eligible for a life settlement. There is a straight logic behind this. Since the buyer would be getting benefited from your policy only after your death, the older you are, the better. However, 65 years is the benchmark.
Broker or Provider
When you decide to sell your life insurance policy, there are two types of professionals who can be involved in the whole process of the transaction. First up, there are brokers, who mediate between you and the buyer. A broker is one person who looks for the buyer and brings offers from buyers to your table. For this task, he would be charging a commission. Next up, there are licensed companies that are run, called life settlement companies.
Now, for anyone who reads this, there’s a sense of confusion whether broker or provider. This can be better explained by what trend has become. Nowadays, people would rather seek services of a licensed life settlement company rather than brokers. First of all, this is because the license of a company is easier to check and confirm credibility. The second problem is that nowadays brokers demand a high commission, sometimes even up to 40 percent of the total value. Choosing a licensed life settlement company is highly recommended.
As you decide to sell your life insurance policy and decide who is going to be involved in the process, you should also know that you are supposed to provide some information. This information helps the broker or provider analyze whether or not your life insurance policy is eligible for an exchange. Furthermore, the broker or the provider would need this information to calculate how much money your policy can get in exchange.
Typically, there are the two kinds of information that life settlement companies or brokers need – medical record and the details of policy. As already discussed, the details regarding policy would help the provider or broker study the nature and death benefit of your policy. And the medical record helps the provider or the broker calculate your life expectancy. The lower your life expectancy, the more valuable the life settlement amount becomes.
Ideally, it is the job of the broker or the provider to get you an estimate as to how much your policy is worth. But, to make sure you are striking a right deal, you also have to have an idea about how much cash your policy can get you. There are several estimates calculating means on the internet that you can use to get an estimate.
It is true that life settlements are taxable. Your policy would not normally incur any taxes when your beneficiary gets the benefit. However, as you opt for a life settlement, the profit value beyond your cash surrender value is taxable.