How Life Expectancy Affects Life Settlements

Selling your life insurance policy through a Life Settlement gives you access to funds that can alleviate financial pressure. Life Settlement value depends on three primary facets — the policy structure and costs, the insured’s actuarial life expectancy, and the current market dynamics.

A longer life expectancy is less appealing to buyers as they will wait longer to capitalize on their investment. While this does not mean you cannot sell your life insurance policy with a longer life expectancy, it may just mean your offers are lower. Understanding how life expectancy and other influencing factors impact the value buyers may place on your Life Settlement is essential.

Understanding Life Settlements

Selling your life insurance policy through a Life Settlement allows you to access a cash portion of your death benefit early. You must be 65 years or older to qualify for a Life Settlement. Even Term Life Insurance policies with a convertibility clause may be eligible for a Life Settlement. By selling to a third-party buyer, you bypass surrendering or letting the policy lapse. The process of selling runs as follows:

• Informal discussions: Your Life Settlement broker explains the options at your disposal and confirms that you are eligible for a Life Settlement. You are not obligated to proceed with the process at this stage.
• Evaluation and review: The broker gathers your medical records, assesses your policy value, and analyzes various factors, including mortality. With this information, they find potential buyers, present your case, and negotiate offers. They will share the offers with you so you can choose the one you like best.
• Contracting and change of beneficiary: Once you accept an offer, your broker collects the contracts and ensures all parties sign. All outstanding documents are collected, and the buyer becomes the new policy owner and beneficiary. You receive your cash settlement, and depending on your state, you may have a 15-day rescission period. 

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Factors Affecting Life Expectancy

Third parties determine your Life Settlement value by considering various factors, including a policy owner’s estimated life span. The factors assessed to measure life expectancy in Life Settlements include:

• Health factors: Your current health status and any medical conditions will significantly impact your life expectancy assessment.
• Lifestyle: Diet, exercise, and whether you smoke are considered.
• Age: The more advanced your age, the shorter your life expectancy, which may appeal to buyers as they will pay fewer premiums.
• Environmental factors: Life expectancy is affected by environmental factors like pollution, which may cause respiratory diseases.
• Genetics: Your family history and genetic predispositions influence life expectancy estimations.
• Cognitive health: Your cognitive function and mental health conditions also impact life expectancy assessments.

Calculating Life Expectancy

The single most important element in settlements is life expectancy. This measures your age, gender, health status, and lifestyle choices. This calculation takes part in two primary steps: an underwriting assessment and quantifying the excess mortality risk using multipliers. These estimations may need to be more accurate and may over- or underestimate life span. The calculation process for your life expectancy report involves these steps: 

• Base life table: A life table estimates life expectancy based on information from the general population of the same age, gender, and race.
• Personal attributes: Using your attributes and individual history records, the broker establishes any risk factors that may affect your mortality and Life Settlement. They will also determine which of these risk factors may have the most impact on life expectancy.
• Reasonable estimates: Medical records and literature will offer additional insight to determine if the life expectancy estimate is reasonably accurate.
• Multipliers: The mortality risks are extracted as numbers to reference the base life table to assist in accuracy measures.
• Calculations: The life expectancy date is modified using the base life table as adjusted by the multipliers.

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Life Expectancy’s Impact on Life Settlement Offers

Your Life Settlement offer depends significantly on your estimated life expectancy, which impacts the perceived risk and potential profitability. Buyers manage their investment risk through return on investment forecasting. The results of this forecast come from the life expectancy calculation. Policy owners with a longer life expectancy may see lower settlement offers than they would like, as buyers want a quicker return on their investment.

If you have a shorter life expectancy, like a terminal or life-threatening diagnosis, you may qualify for accelerated death benefits. This option is generally capped at 50%, so it is worth investigating your options through a Life Settlement as well.

Risks Related to Life Settlements

Despite the benefit of financial flexibility you will gain from selling your life insurance policy, you must also understand the risks that come with it:

• Beneficiary impact: Selling your life insurance policy means your beneficiaries can no longer access the death benefit. It is essential to consider how this sale may impact them now and later.
• Longevity: If you live longer than the projected life expectancy, the lump sum you receive from this sale may run out. Be sure to plan for a time when you may need additional funding without putting financial strain on your loved ones.
• Tax implications: Life Settlement proceeds may be subject to taxation. Ensure you understand these implications and how they affect you before you sell. 

Get the Highest Offer for Your Life Settlement

Selling your life insurance policy offers you more financial flexibility. A Life Settlement’s value is tied to life expectancy, which affects how soon the buyer might have access to the death benefit. If you are considering selling your life insurance policy, speak with your financial advisor about possible tax implications and ensure you have a proactive financial plan. 

Settlement Benefits Association is a Life Settlement broker. As an active LISA member, we represent you and your interests and will handle every step of the sale process on your behalf. Our knowledgeable Life Settlement brokers will help you get the maximum payout for your Life Settlement. Use our Visual Valuator to determine your policy worth, and start the process of selling your life insurance policy today.