A life settlement is defined as the sale of one’s personal life insurance policy to a third party for a value above the policy’s cash surrender value, but less than its total death or benefits face value. In most cases, the entire life settlement involves six steps.
The first step is to ascertain an amount a potential, licensed buyer will or must pay for the entire life insurance policy. If the policy offer is agreed upon by both the potential buyer and the seller, everything then will go to the policy owner. The owner can accept the offer or suggest that the documents go back for further review.
Once all the documentation is completely agreed upon by buyer, seller and policy owner, the verification process begins. The verification process is often done by a third party, usually a lawyer. The main job of the verifying third party is to ensure all contracting documents are correct. The third party also has the power to ensure the policy is in good standing with the insurance company. The lawyer can verify that the funds for the purchase are in an escrow account for the seller of the policy.
When the verification process is finished, ownership change follows. During this part of the process, the notice of change will be sent to the insurance carrier, formally requesting that ownership switches hands from the seller’s name to the buyer’s name. After the insurance company’s specialists read through and approve the transfer, and made sure that the name change is legally recorded, they then get in touch with the escrow agent. The escrow agent then has the authority to release the escrow funds from the purchaser to the seller. The new owner will be responsible for all future premium payments.
Should family members facing this challenge ask you, “How do life settlements work?” you now have the information you need to answer them. The life settlement process is not complicated, but it is time-consuming. It requires attention to detail, diligence to see the steps through to completion, and clear communication by all parties.
