You have a life insurance policy you bought 20 years ago.
Back then, it was to protect your kids. Now, the kids are grown, the house is paid off, but you are facing a new crisis: Long-Term Care Costs.
The premiums are getting expensive, and you need cash for Assisted Living. You plan to call the insurance company to "Surrender" (cancel) the policy for a small cash value.
STOP right there.
You might be about to throw away tens of thousands of dollars.
Instead of surrendering it, you can SELL it to an investor for a lump sum payment. This is called a Life Settlement.
Disclaimer: Life Settlements are complex financial transactions regulated by state laws. Tax implications can be significant. Consult a financial or tax advisor before signing.
Struggling to Pay Nursing Home Bills?
1. What Is a Life Settlement?
A Life Settlement is the sale of an existing life insurance policy to a third-party investor.
- You get: A large lump sum of cash (typically 4x–7x more than the surrender value, depending on eligibility).
- The Investor gets: The policy ownership. They become the new owner and beneficiary.
- The Catch: The investor takes over the premium payments. When you pass away, they collect the death benefit.
It sounds morbid, but financially, it is a lifeline for seniors who need money now while they are alive.
2. The Math: Surrender vs. Settlement
Why should you go through the hassle of selling? Look at the numbers.
💰 Example Scenario ($500,000 Term/Universal Policy)
- Option A (Surrender to Insurer): You might get $5,000 (Cash Surrender Value).
- Option B (Let it Lapse): You get $0.
- Option C (Life Settlement): You could sell it for $100,000 (Market Value).
That extra $95,000 can pay for 18 months of care in a high-quality Assisted Living facility.
3. Who Qualifies? (The Sweet Spot)
Not every policy can be sold. Investors look for specific criteria:
- Age: Typically 65 or older.
- Policy Size: Face value of $100,000 or more.
- Health Change: Paradoxically, if your health has declined since you bought the policy, it is worth more to investors.
- Policy Type: Universal Life (UL), Whole Life, and Convertible Term Life.
4. Viatical vs. Life Settlement
You may hear these terms used interchangeably, but there is a distinct tax difference.
| Type | Condition | Tax Status (U.S.) |
|---|---|---|
| Viatical Settlement | Terminal Illness (Life expectancy < 2 years) | Generally Tax-Free |
| Life Settlement | Seniors (Chronic illness or healthy) | Taxable (Ordinary Income & Capital Gains) |
5. The Risks You Must Know
Before you request a quote, be aware of the downsides:
- Transaction Costs: Brokers can take a significant commission (up to 30%). Always ask: "What is the net amount I will receive?"
- Privacy: You have to share your medical records with investors for underwriting.
- Medicaid Eligibility: Receiving a large cash lump sum may disqualify you from Medicaid until the funds are "spent down."
- No Death Benefit: Your heirs will receive $0 from this policy when you die.
Your Policy is an Asset, Not a Liability
Don't let the insurance company win by lapsing a policy you paid into for decades.
If you no longer need the death benefit for your family, turn it into a "Living Benefit" for yourself.
Get a free appraisal today. It costs nothing to find out what your policy is worth.
Action Plan:
- Find your policy document. Is the face value over $100k?
- Contact a licensed Life Settlement Broker (not the insurance company directly).
- Get multiple offers to ensure you are receiving fair market value.
Helpful Resources:
Life Insurance Settlement Association (LISA)
FINRA Investor Alert: Selling Your Life Insurance Policy
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