1.   THE TWO DIFFERENT MEANINGS

Though used interchangeably, the words ‘life settlement’ and ‘viatical settlement’ have different meanings; the latter means giving up your policy on account of your terminal illness, low life expectancy, old age, and other such related reasons. On the other hand, life settlement means giving up your policy for cash while you have a considerably longer life expectancy. Therefore, make sure to fix the type of settlement for an expected cash return since both have different cash outcomes.

2.   THE CALCULATION OF SETTLEMENT PRICE

The following is the approximate method to calculate the settlement price:

1. 1.  The face amount of your policy: Technically, the greater the face value of your policy is, the larger the viatical settlement you will tentatively receive in return.
   2.   Your life expectancy: Logically, since the buyer may not wish to pay the premium for a long period of time, the lower your life expectancy is, the higher your policy will be valued. It’s important to note that if your policy is a joint holding type, the life expectancy of the healthier party will be considered.

Generally, the following are the factors involved in estimating your average life expectancy:

• • Your average age: It’s assumed that 65-year-old people tend to live longer than 85-year-old people; if you’re on the latter side of age, your policy will be valued higher than the former.
  • Your health as well as medical condition: Generally, your current medical condition will help predict your life expectancy i.e., you will be estimated to die earlier if you have blood cancer rather than a kidney malfunction. In addition, the scope of cure is also considered. This means that if the disease in your body can be cured, as a result, your life expectancy will be improved considerably. In such instances, your policy may be valued at lower rates.

• • Gender: Since it’s scientifically proven that women usually have longer life expectancy than men, it plays a large role in the valuation of your policy.
  • Annual premium: Since it’s always an assumption that your policy is not paid up, the pending premium of the policy will be considered; this means that the lower your pending premium is, the higher your policy will be valued.
  • The guarantees: The guarantees linked with the policy like whether the premium, as well as the amount of coverage, is guaranteed or whether the same is subject to change is considered.
  • Others: Factors like the amount of cash value in your policy, guaranteed rate of interest to be credited on cash values, the prevailing interest rates, anticipated changes in the economy, and other such costs that are required to cover all the parties involved. Also, it’s important to note that if the general interest rate of your policy is high, your buyer may demand a higher rate of return.

3.  THE AVAILABLE ALTERNATIVES

• •   Loans: Since life insurance policies are generally considered as properties or collaterals, you can use the same to obtain short-term loans through banks; such loans do not require special qualifications and are a good option if you like to retain your policy but need some cash immediately to use.
  •   Withdrawals: This is another option as above and is applicable for whole life insurance; you can withdraw cash from your policy account. It’s important to note that such a withdrawal is not taxable until you withdraw more than the allocated amount.

If you’re wondering, “How can I sell my life insurance policy for cash?” the following options might help in addition to selling your life insurance.

• •   Surrender: You can surrender your policy to the company for cash in return; this means that you will no longer be holding the policy and subsequently, your heirs will not receive the benefits on the account of your passing away. On surrendering, it’s mandatory that you have held the policy for a considerable number of years, and you will receive the cash after the deduction of any applicable fee.
  •   Payment of premium amount: If you do not like to surrender your policy, this option is an alternative; you can rightfully stop paying the premium amount for your policy to the company. In doing so, the company will hold the policy in addition to your earlier paid premium amounts. It’s important to note that on exercising this option, you will not receive any cash value and your heirs will not receive benefits after your death.