Life Insurance – Factors Involved In The Price When Selling A Policy

The act of selling a life insurance policy is becoming all the rage these days as people look to turn their illiquid assets into cash they can use. The concept is known as a life settlement. Of course, selling your policy is only a good idea if you get a good price. In this article, we look at the factors involved in the pricing of a life insurance product when selling it.

The sale of a life insurance policy to investors, known as a life settlement, is an unregulated transaction for the most part. It is a tremendous way to turn a life insurance policy into cash now, but how do you actually price the transaction? There are a number of factors considered.

Age and Health

The single biggest factor considered is your health and age. Investors are looking for a good return on investment. They will only receive a return when the person the life insurance is based upon, known as the “insured”, passes on. Given this, they are looking for individuals that are much older or in bad health. It is a bit of a sliding scale between the two factors. They will typically buy a policy from an 80 year old in excellent health, but will not buy one from a 60 year old in excellent health. Conversely, they will also buy a policy from a person who is 40 but has a terminal condition. It can seem a bit ghoulish, but it is simply a financial transaction.

Death Benefit

The third biggest factor is the death benefit on the policy. The purchase price is usually a percentage of the death benefit. Just to be clear, the death benefit is the amount the policy pays when the insured dies.

Type of Policy

The type of policy will also factor into the equation. A term policy, for instance, will only be in existence for so many years while a variable policy may be in existence for the rest of your life. There is a risk the term policy might expire, so the price for that one will be much less than with a variable version.

Other factors that can influence the price include the quality of the insurance company writing the policy, the premiums required to keep the policy in effect and any cash value in the policy to mention only a few. These transactions can always be a bit tricky, so speaking retaining an experienced life settlement agent is a critical move.