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December 30, 2021

Senior Finance Tips: How to Evaluate a Life Settlement Proposal

There are many reasons as to why you may be considering selling your life insurance policy. Perhaps you can no longer comfortably afford your premiums, or maybe your designated beneficiaries no longer need the funds. Regardless of your reasoning for looking into a life settlement, one fact remains: there are many different buyers and brokers out there who are likely willing to make you an offer.

As you begin “shopping around” for life settlement proposals, there are a few specific things you should look for. From there, you can make the decision that’s right for your needs.

The Actual Offer

Of course, one of the most important factors in any life settlement proposal will be the actual monetary offer. How much can you get for your life insurance policy? It’s hard to say, because so many factors can come into play, most settlements will range between a 5% and 50% payout of the policy benefit—but about 20%-25% is the average. This means that if your policy benefit is worth $400,000, then your proposed payout will probably hover somewhere between $80,000 and $100,000.

Other Terms and Conditions

Aside from your monetary offer, you’ll also want to consider other terms and conditions included in your proposal. For starters, if you’re using a broker or another third-party service to sell your life insurance policy, you’ll want to consider any commission that may be collected—as this could affect the total amount that ends up in your pocket. Keep in mind, however, that some brokers collect commissions only from life settlement buyers directly, so you may not end up having to pay anything on your end.

And remember, for your own protection, it’s a good idea to make sure that your life settlement broker or provider is properly licensed in the state where your transaction will take place.

Time Until Closing

In most states, a life settlement is treated very similarly to a basic real estate transaction. After you’ve accepted an offer, you’ll need to submit specific documentation for review before a “closing” date can be decided upon. At the time of the closing on your life settlement, you’ll need to sign over a change of ownership to your policy. This will transfer ownership of your life insurance policy to the buyers. When this occurs, the buyer will place funds into an escrow account, thereby securing your funds for transfer. Even though the buyer is responsible for choosing an escrow agent (and paying all associated fees), it is still wise for sellers to check that a reputable escrow agent is being used.

The amount of time it can take to close on a life settlement can vary based on many factors, but your proposed life settlement buyer should be able to give you a general idea of how long it will take to complete the transaction. You may also want to find out exactly how you’ll receive the funds, whether it will be in the form of a check or a direct wire transfer into your bank account.

Ready to Sell?

These are just a few of the most important things to look at when you’re evaluating a life settlement proposal. At the end of the day, you’ll want to make sure you’re selling your policy to a reputable buyer and that you’re getting a fair offer for your current policy. It’s also a good idea to request offers from multiple buyers/brokers to get a better idea of how much your policy is realistically worth.

Keep in mind, too, that there are often time limits on life settlement offers. In many cases, you will have no more than 30 days to review your proposal and make a decision.

As you can see, there’s a lot to keep in mind when trying to sell your life insurance policy. Wondering how much your policy could be worth? Check out our easy-to-use life settlement calculator to get started. And remember, you can always reach out to our knowledgeable and friendly team at any time for answers to all your questions about life settlements.

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