How Much Is My Life Insurance Worth?

If you are considering a life settlement, you’d probably like to understand how much money your life insurance policy may be worth. The formulas for determining the amount of a life settlement are complicated, and much depends on ever-changing factors like the interest rate climate and which companies want to purchase your policy.

Before you can estimate how much your insurance may be worth, you’ll need to understand if you qualify to participate in a life settlement. There are three main factors to consider. Life settlement providers prefer that the insured person is over the age of 65. They want permanent life insurance policies and term policies that you can convert to permanent policies with a face value of more than $100,000.  
.
Smaller policies may also be eligible for a life settlement, depending on other factors. Investors have fixed costs that the pay for every life settlement, no matter its size. For this reason, smaller policies may be more difficult to sell.  
.
You can choose to work directly with a provider, or you can select a life settlement broker. If you work directly with a provider, you will maximize your payout but will be doing most of the work yourself. If you choose to go with a broker, he/she will work to get the largest possible amount of money for your life insurance policy by going through multiple providers. They gather necessary information, negotiate with investors, and serve as your point of contact throughout the life settlement process. Using a broker also reduces the final amount of money you’ll get. Fee structures vary, but the most a broker can charge by law is 30% of the life insurance sale price.  
.
There are a few important factors that affect how much money your life insurance is worth. The first is the face value of the policy. The larger the policy, the more money it’s worth. Since the provider, or life insurance buyer, will receive the death benefit they are willing to pay more for larger policies.  
.
Policies with lower premiums cost investors less over time, so they are typically worth more than policies with high premiums. When interest rates are low, it costs investors less money to finance their purchases, allowing them to pay more for life insurance policies.  
.
The health status and age of the insured person both play a big role in how much investors are willing to pay for a life insurance policy. Policy owners with health issues that give them statistically shorter life expectancies and older policy owners tend to receive more money for their life insurance policies.  
.
The average life insurance policy sold in a life settlement results in a payment of 20% of the death benefit, or on average 400% more than the cash value (if there is any). So, an average life insurance policyholder with a $500,000 face value could expect to receive $100,000. When you initiate a life settlement, the provider will offer you a more personalized estimate of your policy’s value. In order for a policy to be profitable for investors, the death benefit must exceed the projected premium payments. Life expectancy plays an important part in whether your life insurance policy is eligible for a life settlement and if so, how much money you’ll receive.  
.
A life expectancy underwriter will look closely at the insured person’s medical records and consider their age among other factors to provide investors with an estimated life expectancy. Investors will use this number among others to determine whether purchasing your life insurance policy could provide a profit for them.  
.
If you have cash value built up in your policy, it may make the situation more complicated. In this case, your broker will advise you about how to optimize your chances of being able to participate in a life settlement and receive cash for your life insurance policy.  
.
There are other ways to get cash out of your life insurance policy. Depending on the type of policy, you may be able to take out a loan. You probably won’t be able to access as much money as you could with a life settlement, but your beneficiaries will still receive a payout upon your death. Taking a loan out against your life insurance policy doesn’t relieve you of the burden of premium payments. If you need a small amount of money in a short amount of time, a loan may be a better option for you than a life settlement. The amount of money you can get depends on the accumulated cash value that’s built up inside the policy. 
. 
If your policy has been in force for more than three years, you have the option of surrendering it completely for the cash value. After surrender, you’ll no longer pay premiums. If the policy is only a few years old, the amount you can get will be reduced by fees. Surrendering your policy also cancels it, so your beneficiaries will not receive a payout when you die. If you don’t want or need the death benefit and are considering surrendering your life insurance policy, it’s important for you to understand that life settlements pay less than the face value of the policy but more than the surrender value.  
.
Taxes are another factor that could impact how much your life insurance policy is worth. Since individual financial situations vary, you should consult a CPA with experience in life settlements to find out whether you’ll face a big tax bill after receiving money via a life settlement. In general, any money you receive as a result of the sale of your life insurance that is less than the total amount of premiums you’ve paid over the years should pass to your tax-free.  
​.
The best way to understand how much money your life insurance policy may be worth in a life settlement is to consult an experienced licensed broker. So many factors go into formulating a life settlement offer that doing a bit of research and contacting a provider is a smart move.   ​