What are variable annuities?

Whether you’re simply curious or are seriously considering entering into a life settlement, a quick search on the World Wide Web will turn up dozens upon dozens of life settlement articles that are designed to help you navigate this kind of transaction. So many sources are available that you might find yourself reeling from information overload.  

Well, since we’re here to make your life easier, here’s a bit of good news: you don’t have to wade through pages and pages of life settlement articles just to know what life settlements are. Think of this particular article as “Life Settlements 101” or a Cliffs Notes for life settlement articles: important, basic information from a whole lot of different articles, simplified and condensed into a brief and easy-to-read guide.

Definition

A life settlement is a transaction wherein a senior citizen sells his or her life insurance policy for a lump sum. It is also known as a senior life settlement or senior settlement. A settlement used in this context means a sale or transfer of ownership, rather than a series of staggered payments (a definition that arises mainly in the context of compensatory judgments from lawsuits).

Distinguishing characteristics

One: the individual entering into the transaction is a senior citizen, 65 years old and above.

Two: the senior citizen holds a valid individual life insurance policy.

Three: the policy owner has a perceived need or desire to sell this policy, for a variety of reasons (on more which later).

Four: the life insurance policy is sold to a third party, also known as a life settlement provider. Why a third party? A life insurance policy cannot be surrendered back to the company that issued it. Plus, selling it back to the company commands a very low value, resulting in a financial loss to the policy owner.

Five: the buyer of the policy, or the life settlement provider, assumes responsibility for paying the rest of the remaining premiums on the policy. In return, the life settlement provider becomes the beneficiary of the insurance policy upon its maturation.

Qualifications

Life settlements aren’t doled out to just anyone who owns a life insurance policy. Qualification for a life settlement hinges on the type of life insurance policy, the age and health condition of the insured, and the amount of premiums that must be paid each year.

Key factors that decide the amount of the senior life settlement are the combined effect of the age and health of the insured. In the event that the life insurance policy is a survivorship coverage, the age and health of both insured persons are considered. Senior citizens in their seventies, if in fairly good health, can qualify. Senior citizens as young as 65 years old also qualify if their medical history and other health circumstances justify a limited life expectancy.

The cost and amount of the life insurance premiums is key in establishing the amount that will be offered in a life settlement. Generally, the lower the annual premium amount to be paid, the higher the settlement amount.

Most kinds of life insurance policies can be sold in a senior life settlement, including but  not limited to: term, whole, universal, individual, group and and corporate life insurance policies.