Many seniors find that life insurance purchased long ago is no longer necessary, or the premiums have become unaffordable. Others need cash to pay for medical bills or other expenses more than they need the insurance coverage. Selling your life insurance to a life settlement company can be a sound financial decision in various situations.
This guide will explain what a life settlement is and the alternatives to life settlements. You will get help deciding if a life settlement is preferable to canceling your policy and paying surrender fees.
We evaluated 22 life settlement companies to help you find those with the highest level of industry experience. We considered customer service practices, technologies used to secure your private information and the variety of arrangements. Our six best life settlement companies are Q Capital Strategies, Coventry, Life Policy Solutions, Magna Life Settlements, Abacus Life Settlements and Habersham Funding LLC.
Top Life Settlement Tips:
- Reputable life settlement companies don’t offer “get cash fast” schemes. Settlements take a minimum of 30 days to finalize after processing is completed.
- Walk away from any life settlement company that tries to pressure you into selling your policy.
- Get quotes from multiple life settlement companies.
Tips for a Wise Buyer
A life settlement can be beneficial for seniors facing financial difficulties or those who find themselves overinsured. Life settlements typically pay more than you get when canceling or surrendering your policy. These arrangements pay cash, and you stop paying premiums.
Some life settlements allow you to leave a death benefit to your family, but the company typically receives that payment. Consider your beneficiaries while deciding if a life settlement is the best solution. You will find a list of alternatives to selling your life insurance later in this guide to help with that decision.
A 1911 Supreme Court ruling made life settlements possible after determining that life insurance policy owners can transfer their assets. A type of life settlement called viatical settlements became more widely used in the 1980s. The industry now markets primarily to seniors and has been on the rise.
What is a Life Settlement?
A life settlement involves transferring your life insurance policy to a settlement specialist for a cash payment. Although life settlement companies are beginning to offer more variety in their programs, you typically receive a lump-sum payment.
Life settlement companies pay more than your insurance
surrender value, then profit from the death benefit.
The amount you receive from a life settlement is less than the death benefit but more than the surrender value. The surrender value is the accumulated cash value of your life insurance policy minus surrender fees or other costs due to the insurance company. Policies terms explain the fees involved, which may no longer be in force after you hold the policy for 10 or 15 years.
The typical arrangement involves the life settlement company paying you, then taking over the remaining premium payments. The company becomes the beneficiary on your life insurance, receiving the benefit when you die. The life settlement company may also sell the policy to an investment firm, but you don’t get involved.
How Life Settlements Work
The process of selling your life insurance policy varies slightly across providers. The basic steps to obtain a life settlement are:
Get an estimate by providing some general information about your health, age and life insurance policy. You may be able to use a calculator on the prospective buyer’s website to get a nonbinding quote, or you can call the company. Get multiple estimates.
Complete an application to sell your life insurance. The life settlement company may take your application over the phone or online, followed by a discussion.
Ask about fees. Many life settlement companies charge the seller no fees, while others charge a percentage ranging from 5% to 30% of the gross policy value.
Receive an offer to buy your policy.
Finalize paperwork, including signing off on permission for the life settlement company to review your medical records.
Wait for processing. This may take as little as 30 days but can take up to three months or slightly longer.
Qualify Sooner with a Viatical Settlement
Viatical settlements are designed for the terminally ill and have no age requirement. Life settlements and viatical settlements are similar arrangements. You must be chronically or terminally ill with two years or less of life expectancy to use a viatical settlement.
The proceeds from a viatical settlement are typically tax-free, but you’ll probably pay some tax for a life settlement. Weigh the benefits of having a cash lump sum making life easier while still living against providing for your family after you’re gone. Many life settlement companies also handle viatical settlements.
Alternatives to Life Settlements
Life settlements are best for those who no longer need the policy’s coverage or can no longer afford to pay the premiums. If you don’t fall into one of these two camps, you should probably keep your life insurance.
Consider all options before taking steps to sell your policy. A possibility not listed in the chart is to stop paying premiums to cancel the policy. The only positive outcome of cancellation is the future savings on premiums, though.
|Life Settlement Alternatives|
|1035 Exchange||The IRS allows you to exchange an insurance policy for a new one insuring the same person. You don’t pay taxes on gains earned on the original policy, and you retain some degree of benefits.|
|Reverse Mortgage||A reverse mortgage may be a good solution if you’re at least age 62 and your heirs don’t need to receive a death benefit.|
|Accelerated benefit rider||If your life insurance has an accelerated benefit rider, you can use it instead of selling the policy. This rider pays cash for expenses related to long-term critical illness or terminal illness while you’re still living. The amount you receive reduces the death benefit.|
|Borrow against your policy||If you have whole or universal life insurance, borrowing against your policy may make sense. You may also retain a death benefit for your loved ones.|
|Surrender the policy||A life settlement probably pays more, but speak to your insurance company to learn about your cash surrender amount. Compare the tax implications of surrendering to a life settlement.|
6 Tips for Choosing a Life Settlement Company
If you decide to sell your life insurance policy, you’ll probably only do so once. Few people have experience choosing a life settlement company to give you advice, so we did the research required to provide these tips to save you some time.
Check state licensing first. Check with your state insurance office to see if the life settlement company is licensed to do business in your location. Alabama, Hawaii, Missouri, South Carolina, South Dakota and Wyoming have no life settlement regulations, but other states do.
Ask about a portfolio. The life settlement companies you consider should each have a sizable portfolio of policies. What you’re looking for is evidence of institutional funding for purchases and not individual investors. The company may sell these policies to investment firms or hold them to receive the death benefits later.
Life settlement broker or buyer? Know whether you would be working with a life settlement broker or a buyer (also called a provider). A broker shops life settlement options for you and should be a fiduciary representing your best interests. Brokers typically get paid at least a 10% commission. A life settlement buyer or provider has no middleman and shouldn’t charge any fees. However, the buyer works for the life settlement company, not the seller. They seek the best deal for the company or institutional investors that later buy policies.
Give preference to LISA members. Companies that belong to the Life Insurance Settlement Association (LISA) must annually attest to abiding by a strict code of ethics. This includes acting within the confines of all life settlement laws and regulations.
Research the life settlement company. If you’re working with a broker, use FINRA’s BrokerCheck to read up on the life settlement broker’s background. Likewise, check the Better Business Bureau, and only work with highly rated life settlement companies. Know how the company keeps your information secure. Ask how personal and medical data gets shared and for how long it remains in the database.
Get multiple quotes. Seeking multiple quotes is the only way to get the highest amount for your life insurance policy. There is no standard market information for sellers available, and offers to buy fluctuate. If you work with a broker, ask them to keep you updated on all quotes received.
Our Search for the Best Life Settlement Companies
Life settlements are becoming more and more popular for paying high medical bills or living costs during retirement. Some seniors find themselves overinsured and no longer need the coverage, and a life settlement brings in the highest payment.
To make finding the right life settlement company easier for you, we started our search with 22 firms. We narrowed our recommendations down to the six best options using these steps:
We evaluated the life settlement marketplace. We first considered consumer and expert reviews for the top life settlement companies. We removed those with low ratings from consideration. We gave preference to life settlement companies that specifically explained how they work with consumers.
We assessed the top life settlement companies based on their product ranges and consumer education. We wanted to find the best life settlement companies in terms of experience, options and the consumer information available on their websites. We also considered whether companies offered various types of life settlements.
We followed the advice in this guide to shop for life settlement companies that sell to individuals. We focused on finding life settlement companies based on our Wise Buyer standards. All the companies we selected buy directly from individuals, but some also serve a variety of organizations. Life settlement companies with an ongoing LISA membership were given more weight.
Life Settlement Company Reviews
After our evaluation, we chose the best life settlement companies: Q Capital Strategies, Coventry, Magna Life Settlements, Abacus Life Settlements and Habersham Funding LLC. Each of these companies stood above and beyond the competition.
Q Capital Strategies Review
Great Technology |
Q Capital Strategies equips clients with the information required to make sound financial decisions. The Q Capital Strategies management team has a combined 50 years of experience with life settlements.
Q Capital Strategies developed the QUOTE software platform to provide accurate policy analyses with government-level security features. The QUOTE system ensures state regulation compliance and runs within a FedRAMP-approved cloud environment with 325 security controls.
Q Capital Strategies’ Senior Care Life Settlement pays monthly for costs associated with senior living arrangements. This includes in-home care, assisted living and various other types of long-term care. The monthly payment is adjustable to meet the client’s needs throughout retirement. Q Capital buys insurance policies in 45 states and the District of Columbia.
Coventry Life Settlements Review
Fast Closing |
You can submit information about your life insurance on Coventry’s website to start the process of selling your policy. The company fosters a collaborative environment and hires team members with leadership qualities. Consumer education is a priority.
Coventry’s Simplified Settlements streamline the underwriting process. Life settlements typically close within 30 days after you submit all information. Those who own policies worth $100,000 to $500,000 can use Simplified Settlements.
Coventry’s 40-year history includes conducting the first life settlement transaction and taking the lead in supporting the highest standards of conduct across the industry. The company and its affiliates bought more than five times as many life insurance policies as its closest competitor in 2020.
Life Policy Solutions Review
Great Network |
After more than 20 years in business, Life Policy Solutions amassed relationships with the largest network of life settlement companies and providers. The company uses this network to negotiate the highest offers for seniors who are selling their life insurance. Life Policy Solutions acts entirely as your agent and puts your policy out to its network for bids. This process often helps to drive up the amount you’ll receive from the sale.
Clients do not pay out-of-pocket fees or commissions, are not required to accept offers and can change their mind about selling their life insurance within 15 days of the settling date. Life Policy Solutions provides an online eligibility application you can fill out anytime or call the number on the website.
As a life settlement broker, Life Policy Solutions is staffed by state-licensed professionals who present the life insurance policy to an extensive network of life settlement buyers. Rather than working with just one buyer and one offer, Life Policy Solutions is likely to get the client multiple offers at once to maximize the profit from the life insurance policy sale.
Magna Life Settlements Review
Great Consumer Education |
Magna Life Settlements has been in business since 2004. The company is licensed or qualified to buy life settlements in all 50 states. Magna can handle the life settlement process online and via phone, so you never have to leave your home.
The Magna Life Settlements team has decades of experience with buying life insurance policies. The company also publishes free detailed white papers and quick videos online to explain life settlements to consumers and financial professionals.
Magna has an online life settlement calculator, but you’ll have to wait for a call back for a quote. Magna Life Settlements is not a brokerage, and it charges no fees. The minimum policy the company will buy must be for at least $100,000.
Abacus Life Settlements Review
Great Options |
Abacus Life Settlements buys life insurance policies directly from consumers. The Retained Death Benefit (RDB) option stops premium payments while retaining a benefit for survivors. The Hybrid plan pays cash for your life insurance but keeps beneficiaries listed for a partial death benefit. Abacus Life Settlements also offers the traditional option to buy your policy and become the beneficiary.
Insurance trends publication The Deal reported Abacus paid an average 37% higher than the closest competitor in 2021. Abacus Life Settlements pays an average of 22.5% of face value for life insurance policies. The company is licensed in all states except Wisconsin, North Dakota and Alaska.
Abacus Life Settlements buys life insurance policies starting at $50,000 face value. Use the real-time online calculator to see different scenarios for how much Abacus may pay for your policy.
Habersham Funding Review
Great Industry Experience |
Habersham Funding LLC was established as a life settlement provider in 2001. The company’s founder, M. Bryan Freeman, became a licensed life insurance agent in 1979 and completed his first life settlement 10 years later. Freeman eventually transformed his agency into Habersham Funding to focus exclusively on life settlements.
One of Habersham Funding’s strengths is a combined working knowledge of the life insurance and life settlement industries. The company evaluates potential life settlements to help consumers know if selling their policy is in their best interest. Habersham Funding’s role is to guide the client as a teacher and advocate.
Habersham Funding completes life settlements in all states except Alaska, Florida and West Virginia. The company also serves most U.S. territories. Habersham Funding principals have provided consulting to companies across the United States, Canada, Europe, Asia, Bermuda, and the Channel Islands.
Frequently Asked Questions about Life Settlement Companies
Can I sell just part of my life insurance policy to a life settlement company?
Yes. You can sell a portion of your life insurance, but the process is more complex than selling the entire policy. A partial life settlement provides a cash payment while leaving a reduced death benefit for beneficiaries.
Can I change my mind about selling my life insurance to a life settlement company?
Yes, but how long you have to change your mind varies by state. Most states have a rescission period allowing you to change your mind up to 15 days after receiving payment. You will return your payment plus the cost of any premiums paid by the buyer. Check with your state department of insurance to learn about the rescission period.
Do I need a medical exam to qualify for a life settlement?
No. However, you will have to answer questions about your health. You also will sign a release so the life settlement company can access your medical records. The company can’t provide a firm quote without this information.
Are life settlements taxable?
Although tax regulations are more favorable than in the past, you will likely pay some tax on a life settlement. Depending on the type of insurance policy, part of your proceeds may be taxed as ordinary income, capital gains or some combination of the two.
A portion of the income from whole and universal life policy sales is not taxable. Ordinary income tax rates are usually lower for retirees than the capital gains rate.
I have multiple life insurance policies. Which policies are best to sell to a life settlement company?
If you own more than one life insurance policy, you may have more coverage than you need. Speak to a financial advisor to determine if you have duplicate coverage and if it makes sense to sell one or more of your policies.
Concluding Thoughts on Life Settlement Companies
Selling your insurance policy to a life settlement company can help eliminate financial burdens or pay for day-to-day costs during retirement. Consider your options and keep tax implications in mind. Learn whether receiving the life settlement payout could disqualify you from any income-based programs for seniors. A life settlement may make sense for your financial planning, especially if your heirs don’t need your death benefit.
The Best Life Settlement Companies
|Life Settlement Companies||Best For|
|1||Q Capital Strategies||Great Technology|
|3||Life Policy Solutions||Great Network|
|4||Magna Life Settlements||Great Consumer Education|
|5||Abacus Life Settlements||Great Options|
|6||Habersham Funding LLC||Great Industry Experience|