What Is A Life Settlement And How It Can Help Your Finances


Life insurance is something a person normally invests in to protect their loved ones. To be able to ensure their well-being even after one passes on. However, were you aware that a life insurance policy can also be an investment? Not just for your loved ones, but even for yourself? That’s right. By entering into a life settlement, you can liquidate your life insurance policy, albeit at a value lower than the original benefit itself. However, in the time of need, a life settlement can be your escape route, and even if you receive an amount that is lower than the value of the insurance, it is still quite a sizable amount. Yet, just like any other financial investment, life settlements have their pros and cons. Read on to find out what a life settlement is and how it can help your finances.

What Is A Life Settlement?

A life settlement is a financial transaction in which the owner of the life insurance policy sells it to an investor for a one-time payment. However, there is a trade-off that is made on selling a life insurance policy. When a life insurance policy is sold to an investor, it is usually sold at a price that is more than the original amount invested, but at the same time, it is significantly lower than the value of the cover. However, even though you receive an amount that is lower than what the beneficiary would have received, there are numerous situations where a life settlement can prove to be beneficial and financially more meaningful.

The investor, in turn, benefits from the policy by receiving its death benefits. Once the policy is sold to an investor, all the premiums of the policy after the sale are met by the investor. Consequently, the price that an individual receives for a life settlement can depend on their age and health.

Financial Benefits Of A Life Settlement

The simple fact that the payout of a life settlement is considerably lower than its insurance coverage often seems like a major disadvantage and turns people away from life settlements. There are, however, numerous situations where life settlements make a lot of sense. Here are a few ways in which life settlements can help your finances.

  1. Not Associated With The Investment Market

The return that you receive in exchange for your life insurance is not dependent on the market conditions. This is where life settlements hold a major advantage over other forms of investments. They are also a safer option when risk is considered. The return of a life settlement depends solely on its coverage and the age and health of the owner. This is because the coverage determines the amount of money the investor will eventually receive and the age and health of the owner determines the number of premiums the investor will have to pay,

  1. A Better Option Than Defaulting On Premiums

To maintain your life insurance, periodic premiums have to be paid to the life insurance company. When in a financial crunch, meeting these premiums can often become quite difficult. Defaulting on the premiums can result in you losing the entire death benefit. Although one can always reinstate the policy, it can carry a significant penalty. This is where a life settlement makes a lot of sense. Even though the return would be lower than the coverage, it would prevent you from losing out on your insurance coverage while helping you address your financial crunch at the same time. This is because a life settlement provides you with immediate liquidity.

  1. Can Help Meet Immediate Expense

Life insurance is often one of the most valuable assets a person owns. However, in some cases, it may not make sense to hold on to it. Entering into a life settlement to meet immediate and urgent payments can be an easy way out. According to the investment gurus at Q Capital, your current insurance policy may not be suitable for your current situation and a person’s needs change with time. An investment made 20 years ago, may not make sense today. There are numerous examples where seniors have made use of life settlements to meet immediate and pressing financial needs, like meeting medical bills. A life insurance settlement can improve a senior’s quality of life considerably and provide financial independence.

  1. More Lucrative Than Surrendering

Certain situations can make a life insurance policy meaningless. What if the very person that you purchased the life insurance for is well settled and does not need the death benefit? It could also be that the person that you bought the coverage for is no more. In situations such as these, to continue paying the insurance premiums doesn’t make much sense. However, not paying the premiums would result in losing the death benefit or would require you to surrender your life insurance, in which case the surrender value can be quite low. A life insurance settlement can give you a way out of an unwanted life insurance policy. The immediate liquidity and higher return make it a more lucrative option compared to surrendering the life insurance policy.

  1. Beneficial For Both Parties

A life insurance settlement can prove to be beneficial for both the parties involved in the transaction; the investor and the insured. On selling the policy, the insured receives an immediate payout that is significantly higher than the surrender value of the insurance policy. This can help the insured meet any financial requirements or their retirement expenses. On the other hand, the investor gets an asset that has a well-defined return and is not affected by the stock market.

A life settlement can be an excellent option for various people, especially if they are cash-strapped. Entering into a life settlement makes a lot of sense over continuing to pay premiums that you just can’t afford anymore, leading to its lapse, or surrendering of the life insurance policy entirely. It can also help seniors meet their immediate financial requirements, provide financial independence, and help in leading a comfortable post-retirement life. Since they do not carry the same risks as other market-based investments, they are considerably safer. However, the benefits of a life settlement depend a lot on the particular situation of the individual.

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