Lifetime settlements

Learn about a lifetime settlement

Because life insurance is fundamentally designed as a buy-and-hold financial instrument, the options above do not favor a policyholder from either a tax or financial point of view. But a new option has evolved in the life insurance marketplace that retains the value of life insurance as a personal, business and estate planning tool, and allows policyowners to reapply this value to lifetime needs. This concept is called lifetime settlement.

Lifetime settlement is not the surrender of the policy, but a transfer of ownership. It involves the sale of your life insurance policy to a settlement funding company. As a result of the sale the funding company becomes the owner and beneficiary of the policy, assumes the obligation to pay premiums, and ultimately receives the death benefit proceeds. Instead of determining the value of your policy from the cash value point of view, the settlement funding company discounts your policy’s death benefit, based on underwriting criteria and other factors.

The settlement that is offered is a cash payment to you, the original policyowner. The amount of cash offered for your policy will be less than the face amount of the policy so the settlement funding company can earn a profit from the death benefit, when received. But, obviously, the amount of the settlement offered to you must be greater than the cash surrender value you could already obtain in order to create an incentive for you to sell.

Also see, life settlement information and life settlement benefits