What is a Life Settlement?

A man smiling and very happy after working with a company about life settlements.

Photo by Andrea Piacquadio on Pexels

A life settlement is a lesser-known option for policyholders looking to sell their life insurance policy and be a valuable tool for insurance agents with a current book of business. Insurance policies can be a crucial aspect of a financial plan, but as life and circumstances change, they may find that their insurance coverage is no longer necessary or affordable. In fact, according to a study at Penn State University, 99% of all term policies never pay out a claim mostly due to people allowing their policies to lapse. What if you could find a solution to help your clients retain some of their hard-paid premiums and benefit from their policy during this life? A life settlement could come into the picture as an amazing option for you or your client.

Agents understanding life settlements can help them provide even more comprehensive service to their clients and their book of business by finding opportunities to help. By educating their clients, agents can help them make informed decisions about their insurance coverage and provide additional financial solutions.

History of the Life Settlement

The history of life settlements dates back to the early 1900s. Over the years, various key events have led to its development as a viable option for policyholders. Initially, life settlements were unregulated and were considered somewhat controversial. They received a bad reputation as predatory and unethical giving the industry a bad name. However, with the passage of the Gramm-Leach-Bliley Act in 1999, the life settlement industry became regulated, and policyholders and insurance agents alike received clarity on the process. This act helped to regulate the industry and provided guidelines for life settlement providers and policyholders. The act also helped ensure that those selling life settlements do so in a fair and transparent manner, with the interests of the policyholder protected. Since the passage of the Gramm-Leach-Bliley Act, the life settlement industry has experienced steady growth. In recent years, the number of policies sold through life settlements has increased, and many policyholders’ lives have changed with the advent of this useful tool. The life settlement industry has experienced significant growth in recent years. According to the Life Insurance Settlement Association (LISA), the number of policies sold through life settlements has increased steadily since 2010. In 2021, affiliated LISA members paid consumers over $750 million for their policies averaging 7.8 times more than the policy’s cash surrender value.

A life settlement is the sale of a life insurance policy to a third party for a lump sum of money. This policy differs from other types of insurance products in that it allows policyholders to receive cash in exchange for their policies, regardless of whether or not they have reached the end of their policy term. Life settlements are designed to benefit policyholders who can not pay their premiums, have a policy that is no longer needed, or need access to additional funds. By selling their life insurance policies, policyholders can receive a lump sum of cash that they can use for different purposes, such as paying off debt, financing a child’s education, or even just supplementing their retirement income. The process of selling a life insurance policy is relatively straightforward. First, a policyholder will need to find a reputable life settlement provider. These providers will typically evaluate the policy and make an offer based on the death benefit, the policyholder’s age, and other relevant factors. If the policyholder accepts the offer, the policyholder will receive a lump sum of cash to complete the sale.

In conclusion, life settlements are a critical option for policyholders looking to sell their life insurance policies. There are many reasons to obtain a life settlement. First, they provide a benefit for people who would otherwise have let the policy lapse. Second, they can provide much-needed financial relief to someone who needs money now and not after they die. Third, they can help spur a creative solution for someone with an underperforming policy and provide liquidity for repositioning. If insurance agents understand life settlements, they can help provide even more comprehensive service to their clients. By educating their clients about this option, agents can help them make informed decisions about their insurance coverage and provide them with additional financial solutions. We hope this article has provided valuable information on life settlements and has encouraged you to learn more. If you want to learn more about another helpful topic, like annuities, click here.

Agents

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Jose Lerma

Jose has been a career agent working with Empower Brokerage since 2021 helping clients from all walks of life find tailored solutions for their healthcare needs.