Life insurance policies are a great safety net to have in place in the event of unfortunate circumstances and an untimely death. However, those policies can actually be a saving financial grace now for people struggling with their finances.
Life settlements can provide money by allowing a third party to purchase a life insurance policy to help a policyholder and their loved ones achieve greater financial security in their situation as soon as possible.
What is a life insurance settlement?
A life insurance settlement provides a policyholder with a lump-sum payment, with the help of a life insurance broker to help garner the best offers for your insurance policy. Payment is more than the surrender value, but less than the actual death benefit. The life insurance policy’s purchaser becomes the beneficiary, assuming the payment of premiums, and receiving the net death benefit when the insured passes away.
A life settlement is often seen as a viable option in the event of emergencies, such as the death of a family member or a sudden sickness. A policyholder can sell this life insurance policy in lieu of reaching out to a loan association to pay down unexpected debts. Life settlements are also an option for an insured person who can no longer afford the premiums on their plan. This will get them some money, rather than letting the policy lapse and be canceled. This is also something to be considered as the owner of a life insurance policy that you may no longer need.
Life Insurance Policies
There are certain types of life coverage that can be sold off via life insurance settlement after issuance of the policy. You can sell either a term life policy or a permanent life policy.
A term life insurance policy provides coverage at a fixed rate of payments for a limited period of time, which can be extended by renewal. A permanent life insurance policy, or whole life insurance, covers the remainder of the insured’s life, so long as premiums are paid. It’s worth noting that a third party looking to purchase this from a policy owner prefer permanent policies, so there’s no risk of the insured outliving the length of their term life plan.
What is a viatical settlement?
Within life settlements and the life insurance industry, there is the viatical industry. A viatical settlement refers to the financial transaction of a plan from a life insurance company from a policyholder, also known as the viator, to a third party, such as a viatical settlement provider.
Under the viatical definition, licensed brokers work with a viatical settlement purchaser to facilitate a lump-sum payment. However, viatical settlements can only come into play in the event of the insured dealing with a terminal or life-threatening chronic illness. Brokers of viatical settlements shop a life insurance policy on behalf of a viator, creating a valuable consideration for policyholders to keep in mind before agreeing to an offer.
The payout of the policy will be less than the death benefit, or face value, of the life insurance plan, but more than its cash surrender value. Cash surrender value is the money paid by an insurer to a policy owner if they voluntarily end coverage prematurely or before an insured event happens.
Viatical settlements can be used for a range of items during the remaining life of an individual. While some viators opt to use the funds they’re given towards medical bills and paying off a lender or outstanding debt, some opt for covering future costs, like a child’s tuition, or even a final trip with loved ones.