If you are considering selling your policy, you may be wondering, “what is my life insurance policy worth? or my policy is from 19xx , hoe much is it worth?”— and whether selling is even a viable option. Life settlements are an increasingly favorable alternative to surrendering or lapsing a policy, since selling puts more money in your pocket.
In fact, the amount you get could easily be two or three times your life insurance policy’s cash value. (Cash value is also referred to as account value, the savings component included in some life insurance policies.)
Calculating Your LIfe Settlement Payout
There are multiple factors that can affect how much money you can get from selling your life insurance. Let’s take a closer look:
Your age and health
Your age, combined with your health, is an important variable in calculating a life settlement payout. In general, the older you are, the greater your life settlement payout will be. This concept is built on a financial principle known as the time value of money. This principle states that a dollar today — which, theoretically, can be invested sooner and collect interest faster — is worth more than a dollar tomorrow. Similarly, if all else is equal between two life insurance policies, an older seller’s policy is more valuable than a younger seller’s. This is because, in theory, a buyer could access the beneficiary payout sooner.
Your policy type
Typically, universal life insurance is the most sought-after option for life settlement buyers, followed by whole life insurance. Both of these policy types provide a beneficiary payout and a built-in cash value that accumulates during the policyholder’s lifetime. For investors, these attributes promise a more lucrative long-term investment.
Convertible term life insurance policies are also appealing to investors. Unlike term life insurance, a convertible term life policy does not expire and generates a built-in cash value.
Your policy’s face value
In general, a higher face value, or beneficiary payout, yields a larger life settlement payout, since the gain to the investor is greater. For instance, your $100,000 policy may get you a $30,000 life settlement, whereas a $1 million policy may get a $300,000 payout.
Your policy’s cash value
Cash value, or account value, is the sum of money that has accumulated inside a policy, along with any interest accrued. Note: Life insurance cash value is different from a policy’s cash surrender value, or net cash value. Cash surrender value is the actual amount you would receive from your policy’s cash value.
Your premium costs
For buyers, the cost of keeping a policy active, or in force, is another significant consideration. Lower premiums usually generate a higher life settlement payout.
Outstanding policy loans
Keep in mind that any existing policy loans will decrease the overall value of your policy.
Settlement Options to Get the Most Value out of Your Policy
If you are considering selling your life insurance policy, you have several life settlement options — the most common being traditional, viatical, and a retained beneficiary payout.
A traditional life settlement is the most common type of life settlement. If you are over 65 years old and have a whole, universal, or convertible term policy valued over $100,000, you may be eligible for a traditional life settlement. Traditional settlements are a viable option for those who no longer require a beneficiary payout, are looking to supplement an underfunded retirement account, or need immediate cash for a loved one’s healthcare.
A policyholder who is chronically or terminally ill may opt for a specific type of life settlement, known as a viatical settlement. Payouts from viatical settlements are typically higher than those from traditional life settlements, since a buyer’s investment will likely be realized sooner. Viatical settlements work well for policyholders who need money for immediate treatments and quality-of-life care.
Retained Beneficiary Payout
A retained beneficiary payout allows you to maintain a portion of your beneficiary payout after a life settlement. In other words, you are not cashing out your full policy. As a result, a retained beneficiary payout typically yields a smaller settlement. This arrangement works well if you have financial needs now, but still plan to provide for your loved ones in the future.
The bottom line
Life settlements are increasingly becoming a preferred means of disposing of unwanted or unneeded life insurance coverage — and offer a much greater return than a surrender, withdrawal, or loan may offer.
For a free life settlement estimate, fill out our online form. Answer a few simple questions about yourself and your policy and discover your life insurance policy’s cash value.