An Introduction to Life Insurance Settlements
Posted on October 12th, 2008 in life insurance settlement |
When a fundamental need for a life insurance policy ceases to exist, the policyholder has two options: taking up a life insurance settlement or waiting for the policy to lapse. A life insurance settlement is the arrangement that allows a life insurance policyholder to sell it to a bank, insurance company or other financial institution for an immediate cash settlement. Usually, the amount that the financial institution pays the policyholder has huge discounts on his/her net death settlement.
Life insurance settlements are estimated by calculating the policyholder’s life expectancy against the value of the life insurance premiums. All forms of life insurance covers qualify for the settlement, but each must have been in existence for at least two years. There are two types of life insurance cover settlements- a life settlement and a viatical settlement.
Under the life settlement arrangement, a policyholder is entitled to receive a percentage of the life insurance policy’s estimated value in addition to the cash settlement he/she receives on surrendering the policy to the buyer. Under viatical settlements however, a policyholder suffering from a terminal illness is able to utilize the insurance policy value to offset his/her medical bills.
Financial institutions that purchase the life insurance policies either hold them as assets or sell them off to another person who benefits from the policy at maturation. The new beneficiary must however pay for subsequent insurance premiums. The ideal life insurance settlements are sold by policyholders aged above 65 years because such policies value exceeds the cash settlement offered to the policyholder.
Many policyholders are unaware of the life insurance settlements until when their financial advisors points out the option. This is usually the case then the policyholder who qualifies for the settlements is cash strapped and have little or no options to get enough money for other investments. Since there is no set standard value for the settlements, the overall value that the policyholder gets depends on the bargaining power of the life settlement brokers or financial advisers.
