AARP Hearing Center
A growing number of Americans are selling their life-insurance policies to get cash for retirement expenses and long-term care. These transactions are commonly called "life settlements," "senior settlements," or—if the person is terminally ill—"viatical settlements." While selling a policy may make sense in some circumstances, consumers should be cautious.
How Life Settlements Work
Life settlements involve selling a policy to a company other than the original insurance provider. As the policy owner, you typically receive more money than you would get if you cancelled or surrendered the policy, but less than the policy's death benefit. You can either shop your policy around through a life-settlement broker or contact life-settlement providers directly.
The first step is to provide copies of your insurance policy and medical records. A settlement provider then makes you an offer based on your age and health, the type of insurance, the premiums, and the death benefit.
Candidates for life settlements are typically 65 or older and own a policy with a face value of at least $100,000. "Simply put, the lower the premium and life expectancy, the more a policy is worth," says Doug Head, executive director of the Life Insurance Settlement Association.
If you choose to accept the offer, the life-settlement provider pays the amount agreed upon and takes ownership of the policy. The provider then becomes responsible for the premiums and eventually will receive the death benefit when you die.
"There are definitely instances where a life settlement makes sense," says Wendy Goldband, an independent insurance agent in Baltimore. "Your life circumstances may have changed so that you no longer need the coverage. Perhaps you've just divorced. Or you may have been hit so hard by the economy that you can't afford to keep paying premiums."
