A settlement is only possible when the policy’s market value exceeds the cash surrender value.
Key factors in determining the market value of a policy are the death benefit, the cost of future premiums, and the life expectancy of the insured.
Life expectancy is the key component in determining the market value of a life settlement transaction.
The lower the premiums and the shorter the life expectancy, the higher the selling price. This is because the greater the amount of premiums that need to be paid and the longer the investor must wait for the death benefit, the lower the policy value.
Key characteristics of the settlements market generally include:
- Insured’s age is 65 or older
- Insureds with life expectancies of less than 12 years
- Insured may have one or more health impairments
- Universal life, term life and 2nd to die policies are most commonly settled.
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