When people get a life insurance policy, they mostly do so in order to support the insured. However, a life insurance policy doesn’t just benefit the insured. When there is a situation where you need money, you can sell your policy and get cash in return as well. People sell their existing life insurance policy for a number of reasons. Whether you need to handle medical expenses, pay off debts, buy another property, or just have some cash in hand as a backup, your policy can be a savior in such situations.
While settlement options for life insurance policies can be super useful in many ways, there are certain criteria that a policyholder should meet in order to qualify for a life settlement. These conditions may even vary from one state or country to another. However, here’s a list of common criteria that you must meet in order to qualify for a life settlement.
Policy Value
If you wish to sell your life insurance policy, note that your policy should have a minimum of $100,000 worth of death benefit. There is a reason why the life settlement industry considers a minimum value in order to buy it. Life settlement companies have a well-defined structure to transact and accommodate bigger policies. This is because the industry is still young and needs more exposure and growth. However, as the industry grows, we can expect a drop in the minimum policy value in the future.
Type of Policy
There are various types of life insurance policies, which is why it’s important to define which ones qualify for a life settlement clearly. If your life insurance policy is a convertible term life policy or a universal life policy, it’s eligible for a life settlement upon being sold. Permanent policies, as well as group policies like convertible term policies, can also be sold for a life settlement.
However, standard term policies and premium financed policies don’t qualify for a life settlement.
Age of the Policy
One of the state-regulated criteria for a policy to be sold in return for a life settlement is the age of the policy. The policyholder is supposed to own the policy for a certain amount of time in order for the policy to be considered mature enough to be sold. For this, you have to see what’s the policy age criterion specifically in your state. Furthermore, certain states call for an exception to this criterion for cases like the passing away of a spouse or divorce. However, the exception also depends on the state you live in.
Age of the Policyholder
This one is a criterion that you, the policyholder, is supposed to meet to be able to sell your policy. If a person is 65 years of age or above, it’s considered to be an ideal scenario to sell the policy when it meets the other criteria. The older you are, the more money you get in exchange for your life insurance policy.
This criterion makes sense when you think from the third-party’s perspective. When you sell your policy to a third-party, the buyer has to pay for the premiums. So, the older you are, the lesser the buyer has to pay for premiums in the coming years before getting the death benefit.
Policyholder’s life expectancy
Yet another criterion pertaining to the policyholder is his life expectancy. While many people think that a lesser life expectancy would qualify the policyholder to sell their policy, there is a difference here, however. There are two kinds of life settlements. While one is the standard life settlement we talk about, the other is a viatical settlement.
A policyholder can only sell his policy for a viatical settlement if he is terminally ill and has a life expectancy fewer than 2 years. Thus, to differentiate viatical settlements from life settlement options for life insurance, the policyholder’s life expectancy should be above 2 years. While that is the basic criterion, a life expectancy of more than 2 years, but not too much over that, would get you more money.
Life settlement companies or brokers generally calculate life expectancy with the help of the policyholder’s medical history and current status.
These are the criteria that policyholders need to meet to qualify for settlement options for life insurance. As already mentioned, certain criteria may differ for different places based on how a state regulates its eligibility criteria. When you go to a life settlement company, they would assess all the aspects and make it clear if your policy qualifies for a life settlement or not.