Search Articles

Find Attorneys

Life Settlements: Cash for Your Life Insurance Policy

  • August 23rd, 2018

[This article was originally published on March 11, 2008.  The links were updated on August 23, 2018.]

Are you having difficulty keeping up premium payments on a life insurance policy, or do you no longer need the policy? Policyholders once had only two options: let the policy lapse or turn it in for a meager cash surrender value. Now there's another, often vastly more lucrative alternative: sell the policy to a life settlement company.

Local Elder Law Attorneys in Your City

Elder Law Attorney

Firm Name
City, State

Elder Law Attorney

Firm Name
City, State

Elder Law Attorney

Firm Name
City, State

Such companies, which have sprung up only in the last several years, buy insurance policies -- term, whole life, universal and other types -- from seniors, pay the premiums, and collect the death benefit when the policyholder dies. Payments are usually significantly more than a policy's trade-in value (but less than the death benefit, of course).

To give one example, a policy with $1.25 million in coverage and a $190,000 cash surrender value was sold to a life settlement company for $415,000.

Life settlements are different from viatical settlements, in which a settlement provider purchases policies from policyholders who are terminally ill. Life settlement companies typically buy policies from people over age 65 who have had a downturn in their health, but who are not terminally ill, and who own a policy with a face value of at least $100,000 to $250,000, depending on the company.

Life settlement companies are typically licensed by the state insurance department, although not all states require a license. The industry leader is Coventry First of Fort Washington, Pa., which has 40 percent of the market share and has purchased more than $1 billion in life insurance. Or, your financial advisor may send your policy to a broker, such as Windsor Life Settlements, which will shop the policy around to various life settlement purchasers to get the best deal. The potential market for life settlements has been estimated to be as large as $134 billion. See related article, "New York Sues Life Settlement Company for Influencing Brokers."

There are some downsides to such transactions, however. For one, some or all of the proceeds may be taxable. In addition, the beneficiaries of your policy may not be pleased with the sale, which is why some life settlement companies require beneficiaries to sign off on the transaction.

Selling a policy may not necessarily be a good deal for the policyholder, depending on the circumstances. According to one estimate, there's a 90 percent chance that a policyholder would do better financially by holding onto the policy than selling it.

Still, the vast majority of life insurance policies either lapse or are surrendered before a death claim is paid. For those who can't afford premiums or no longer need a policy, selling to a life settlement company can be a great option.

For answers to frequently asked questions about life settlements, go to: http://www.windsorlifesettlements.com/what-is-a-life-settlement/ and the life settlement broker Ovid offers "The Definitive Guide to Life Settlements."


Last Modified: 08/23/2018

ADVERTISEMENT
Medicaid 101
What Medicaid Covers

In addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.

READ MORE
How to Qualify for Medicaid

To be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.

READ MORE
Medicaid’s Protections for Spouses

Spouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.

READ MORE
What Medicaid Covers

In addition to nursing home care, Medicaid may cover home care and some care in an assisted living facility. Coverage in your state may depend on waivers of federal rules.

READ MORE
How to Qualify for Medicaid

To be eligible for Medicaid long-term care, recipients must have limited incomes and no more than $2,000 (in most states). Special rules apply for the home and other assets.

READ MORE
Medicaid’s Protections for Spouses

Spouses of Medicaid nursing home residents have special protections to keep them from becoming impoverished.

READ MORE
Medicaid Planning Strategies

Careful planning for potentially devastating long-term care costs can help protect your estate, whether for your spouse or for your children.

READ MORE
Estate Recovery: Can Medicaid Take My House After I’m Gone?

If steps aren't taken to protect the Medicaid recipient's house from the state’s attempts to recover benefits paid, the house may need to be sold.

READ MORE
Help Qualifying and Paying for Medicaid, Or Avoiding Nursing Home Care

There are ways to handle excess income or assets and still qualify for Medicaid long-term care, and programs that deliver care at home rather than in a nursing home.

READ MORE
Are Adult Children Responsible for Their Parents’ Care?

Most states have laws on the books making adult children responsible if their parents can't afford to take care of themselves.

READ MORE
Applying for Medicaid

Applying for Medicaid is a highly technical and complex process, and bad advice can actually make it more difficult to qualify for benefits.

READ MORE
Alternatives to Medicaid

Medicare's coverage of nursing home care is quite limited. For those who can afford it and who can qualify for coverage, long-term care insurance is the best alternative to Medicaid.

READ MORE
ElderLaw 101
Estate Planning

Distinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.

READ MORE
Grandchildren

Learn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.

READ MORE
Guardianship/Conservatorship

Understand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.

READ MORE
Health Care Decisions

We need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

READ MORE
Estate Planning

Distinguish the key concepts in estate planning, including the will, the trust, probate, the power of attorney, and how to avoid estate taxes.

READ MORE
Grandchildren

Learn about grandparents’ visitation rights and how to avoid tax and public benefit issues when making gifts to grandchildren.

READ MORE
Guardianship/Conservatorship

Understand when and how a court appoints a guardian or conservator for an adult who becomes incapacitated, and how to avoid guardianship.

READ MORE
Health Care Decisions

We need to plan for the possibility that we will become unable to make our own medical decisions. This may take the form of a health care proxy, a medical directive, a living will, or a combination of these.

READ MORE
Long-Term Care Insurance

Understand the ins and outs of insurance to cover the high cost of nursing home care, including when to buy it, how much to buy, and which spouse should get the coverage.

READ MORE
Medicare

Learn who qualifies for Medicare, what the program covers, all about Medicare Advantage, and how to supplement Medicare’s coverage.

READ MORE
Retirement Planning

We explain the five phases of retirement planning, the difference between a 401(k) and an IRA, types of investments, asset diversification, the required minimum distribution rules, and more.

READ MORE
Senior Living

Find out how to choose a nursing home or assisted living facility, when to fight a discharge, the rights of nursing home residents, all about reverse mortgages, and more.

READ MORE
Social Security

Get a solid grounding in Social Security, including who is eligible, how to apply, spousal benefits, the taxation of benefits, how work affects payments, and SSDI and SSI.

READ MORE
Special Needs Planning

Learn how a special needs trust can preserve assets for a person with disabilities without jeopardizing Medicaid and SSI, and how to plan for when caregivers are gone.

READ MORE
Veterans Benefits

Explore benefits for older veterans, including the VA’s disability pension benefit, aid and attendance, and long-term care coverage for veterans and surviving spouses.

READ MORE