If you can’t afford life insurance premiums into retirement and you’re considering surrendering your policy, don’t throw in the towel just yet. Instead of getting little to nothing for your policy, you can work with a life settlement company to secure a solid chunk of your benefit—without paying further premiums.
Simply put, a life settlement is the sale of a life insurance policy, explains Jeff Smith, director of marketing at Abacus Settlements, a licensed direct life settlement provider and buyer headquartered in Orlando, Florida. “We take over the premiums entirely, and in exchange we pay the insured the agreed-upon value.”
Here, Smith explains the process of life settlements for seniors and their families, providing insight into circumstances when a settlement might be a wise financial move.
When to Consider a Life Settlement
For those on the verge of surrendering a life insurance policy, it pays to look into a life settlement. As Smith says, there’s no risk in calling to find out if you qualify. And at Abacus, the process of obtaining a life settlement takes just 30 to 45 days from start to finish.
“Most of our clients are either in danger of losing their policy because their premiums are getting out of hand, or they just don’t need their life insurance anymore,” he says. “A life settlement is guaranteed to be greater than the surrender value of your policy, so it’s an excellent method to get much more value out of your policy.”
On the other hand, if you and your family are still comfortable making payments, it makes sense to keep the life insurance policy. “We won’t ever be able to make an offer for the full value, so if holding onto the policy permanently is an option without going through too much financial strife, we recommend it,” says Smith.
How to Use the Funds
You can use life settlement funds for any purpose, such as paying off medical bills, paying down debt, and paying for senior care.
“The most direct path to paying for senior care is selling your life insurance policy and using the cash settlement to pay for care,” says Smith.
Life settlement cash can be used for any type of senior care, including assisted living, skilled nursing care, memory care, home care, and hospice care. Through Abacus’ long-term care benefit plan, the company uses the settlement value to set up constant income for seniors. “Some of our clients pay for their senior care exclusively with this program,” says Smith.
Get to Know the Players
If you’re considering a life settlement for any reason, it’s important to know the people with whom you’re working. Smith outlines the key differences between lead generation companies, brokers, agents, and providers:
Lead generation companies: These companies are not actually involved in the life settlement process; they simply generate leads and send them to brokers and providers.
Brokers: These professionals are very similar to lead generation companies, except brokers do some of the legwork (e.g., ordering medical records and insurance information) and then send the cases to providers.
Agents: These are life insurance agents—often the person who originally sold a policy to the client. Smith says that seniors are often more comfortable working with an agent, who serves as their advocate. Agents work directly with providers on the client’s behalf.
Providers: These are the companies (like Abacus) that actually purchase a client’s life insurance policy. Therefore, every client who goes through a broker or lead generation company will eventually end up at a provider.
Of course, it’s important to make sure the life settlement company you’re working with is above board. Check the company’s credentials with the Better Business Bureau, and shop around.
“Shopping around is common in the settlement industry, and we encourage that,” affirms Smith. “If you are ever asked to sign anything that locks you or your policy down exclusively to one company, run.”
The good news for consumers is that 42 states regulate life settlements, which involves stringent vetting and constant oversight to ensure your protection.
“Look for life settlement companies that have verifiable licenses and no history of legal issues over at least a 5- to 10-year period,” Smith advises. “If the company isn’t fully licensed in the state in which it is doing business, you should walk away.”
Bottom line: For many seniors and their families, life settlements provide tremendous value.
“If you qualify for a settlement, then you will definitely make more than you would from the insurance company,” says Smith. “So it always makes sense financially.”
CHIME IN: How has a life settlement helped your family pay for senior care?