Should You Take a Life Settlement

Life insurance policies are designed to provide financial security for your beneficiaries after your death. However, circumstances can change, and there may be a time when you no longer need or want your policy. In such cases, life settlements can be an alternative to surrendering your policy for its cash value or letting it lapse.

If you’re considering selling a life insurance policy you no longer want, it’s important to understand your existing policy, your options, and the role of a life settlement broker. This way, you can protect yourself against fraudulent practices and make an informed decision should you take a life settlement.

Life settlement salespeople

A life settlement involves selling your life insurance policy to a third party, other than the issuing insurance company, in exchange for a lump sum payment. This payment is typically higher than the policy’s cash surrender value but lower than the net death benefit.

Life settlements are regulated by state insurance commissioners and, in the case of variable life insurance products, by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). While most states have regulations in place, not all life settlement transactions are subject to oversight. Therefore, it’s important to research and verify the purchaser of your policy is properly licensed and regulated.

When you sell your life insurance policy, the buyer pays you a lump sum and takes over the responsibility for future premium payments. The amount you receive depends on factors such as your age, health, and the terms of your policy. Typically, the payment is more than the policy’s cash surrender value but less than the death benefit. The buyer will receive the death benefit when you pass.

Here are some factors to consider:

• Ongoing Life Insurance Needs: Evaluate whether you still need life insurance coverage and if you can afford a new policy with similar benefits.
• Less Costly Alternatives: Explore options like borrowing against your policy or accelerated death benefits before opting for a life settlement.
• Determining Fair Prices: Ensure you’re getting a fair deal by shopping around, using licensed brokers, or consulting financial advisors.
• Financial Impact: Be aware that the lump sum payment can be taxable and may affect your eligibility for public assistance programs.
• Impact on Your Survivors: Consider the future financial needs of your beneficiaries and whether selling your policy might impact them.
• Privacy Concerns: Understand that buyers will have access to your personal health information and may require periodic health updates.

Life settlement brokers and sales tactics

A growing number of states regulate life settlement companies and brokers, often requiring them to be licensed. Only FINRA-registered financial professionals are permitted to transact in variable life settlements due to federal securities laws and applicable FINRA rules. To find out if the life settlement company or broker is properly licensed and has no record of complaints, contact your State Insurance Commissioner. And you can use FINRA BrokerCheck to investigate the professional background, registration status, and disciplinary history of any registered financial professional involved in your transaction.

Equally important is understanding the role of any individual soliciting you to sell your life insurance policy. Are they a broker representing you or affiliated with a particular company, which could limit your ability to compare offers? Be extremely suspicious of life settlement companies and brokers with a history of bad reviews or regulatory infractions. If you’re working with a broker, inquire about the bids and how you’re being offered the most competitive price.

Remember, life settlements can involve high transaction costs, and those selling them may receive large commissions. Always ask how these solicitors are compensated and assess whether this product is the best option for you. Be wary of high-pressure salespeople taking advantage of you or aggressive advertising. A reputable investment professional should provide clear answers to your questions and allow you the time to weigh the pros and cons.

Third party help

Deciding should you take a life settlement involves carefully weighing your current and future financial needs. That’s where an independent life insurance policy review can help. By comparing various offers and exploring all your options, including borrowing against policies or considering accelerated death benefits, you can safeguard yourself and your future today.