Life insurance is purchased with the purpose of providing financial security for your loved ones in the event you are no longer around to provide for them. The primary purpose of a life insurance policy is to furnish a steady stream of income for your family when you pass. This amount of money can also be used to pay off any medical bills from treatments you might have received. There are many times that this stream of money needs to last for a lifetime. Life insurance is an elective that many people are provided an option through their work - similar to health insurance. However, if it is not offered to you there are many organizations you can purchase life insurance through. 
In many cases, the beneficiary of a life insurance policy takes the full amount of the death benefit at once. If you are not too familiar with life insurance policies, you may think that this is your only option. However, insurance companies also offer a variety of other settlement options to help meet your unique financial needs.  

The Purpose of Life Settlements

There are many reasons policyholders look to sell to liquidate their insurance policy through a life settlement. 
If a life insurance policy is no longer needed, no longer wanted, or no longer affordable it might be a great time to sell. Your life insurance policy might be worth more than its cash surrender value. Don’t lapse or surrender your life insurance policy until you understand if it’s worth more. 

Beyond the premiums no longer being affordable, there are several other reasons why a policyholder might want to sell:

• The need to replace lost income in case of death of the insured no longer exists

• The need for funds to pay estate taxes no longer applies

• There is a need for resources to pay for health expenses and long term care

• A term policy may be reaching the end of the coverage period

• Funds are wanted to improve a retirement lifestyle

The sale of your policy is not for everyone. If you don’t want to sell your policy there are alternatives that might be right for you:

• Keep the policy in force through a loan or use of the cash surrender value

• Seek an accelerated death benefit, if available

• Assign the policy as a gift or charitable contribution

• Convert a term policy to permanent insurance

• Reduce the death benefit with a lower face value and lesser premiums

• Lapse or surrender the policy

Anyone considering a life settlement should first talk with their insurance, financial and/or legal advisor to explore all legal, tax and other consequences from selling their policy. 

Benefits of Selling Your Life Insurance Policy

There can be several benefits to the policyholder and their loved ones when settling their life insurance policy. 

• The average life expectancy continues to grow in the U.S. and you might not have planned to save for the very comfortable life you now want to have. A life settlement option gives you cash to live your life as you please.

• A viatical settlement is another reason for a life settlement to occur. A viatical settlement is a lucrative arrangement for people suffering from a terminal disease. These people are able to sell their life insurance policy at discounted rates and obtain cash, which can help with financial hardships or other needs. 

Legal Precedent for Life Settlements 

The benefits and purpose of life settlement options go back to 1911 with the first documented court case, Grigsby v. Russell. Grigsby, who was a doctor, purchased a life insurance policy from his patient, John C. Burchard for $100 in 1911 in order to pay for a medical procedure. Their agreement was that Grigsby would pay the premiums and after Burchard’s passing, he would receive the death benefit. Once Burchard passed away, his executor, R. L. Russell, contested Grigby’s right to the death benefit. This court case set precedent for the life settlement industry as the courts disagreed with Russell and allowed the transaction between the doctor and patient. This case and legality of the process still stands today for those who are interested in investing in a life settlement. 
To find out more about life settlement options or see if you qualify, reach out to one of our qualified members to help you. No matter which one you choose, make sure it is the right fit for you. If you need help deciding, reach out to a LISA Member who is authorized to help you in your decision.