A life insurance settlement is the purchase of the existing life insurance policy by a third party for cash. If any senior citizen of age is over the age of sixty-five, has some health problems or is terminally ill, is in a financial crisis, then he/she may choose a life insurance settlement as an option for discharging all the financial obligations. Generally life insurance settlement companies or brokers purchase insurance policies from people. These companies pay a fixed percentage of the policy amount which will be higher than the cash surrender value of the policy offered by the insurance company but which will be less than the actual net death benefit of the policy. The fixed portion depends on the age and the life expectancy of the policyholder, market rating of the insurance company, policy size, number of premiums paid etc. The life settlement company submits all the necessary documents to the insurance company requesting the change of the ownership and the beneficiary of the policy. Once it gets the confirmation from the insurance company, it will start paying premiums on the policy and collects benefits on the demise of the old policyholder.

However the policyholder should be very careful while making settlement procedures with the settlement company. Here are the tips and considerations of much importance to be considered by the policy owner.

Tax liability

Generally, the amount paid in the form of premiums by the policy owner is tax-free but the amount received from the insurance settlement company over the premium amount is subject to tax. However before the payment of the tax it is advisable for the policyholder to consult his/her personal tax advisor.

Information about quotes and fee

The policy owner needs to shop around to get the information about different competitive prices for his insurance policy. He/she should find out clearly with the life settlement company the fee to be paid, if any.

Licensed broker

Before making a contract with the life settlement company, the policy holder has to make sure that the company has the recognition and license from the state government or other similar institution.

Consulting financial advisor

It is essential on the part of the insurance policy owner to contact the state government insurance agent for having full knowledge about the life settlement contracts and the risks involved in them. He/she has to consult personal financial advisor to know the better options available, if any.

Settlement process

The policyholder needs to understand the entire process of life insurance settlement thoroughly and has to decide whether to sell his/her life insurance policy directly to the life settlement company or through a life settlement broker.

Other considerations

The policy owner should be truthful in giving answers in the application of settlement. He/she is expected to have complete knowledge about the laws applicable to the life insurance settlement contract in the state, if any. He/she should ensure that the settlement proceeds should be credited to the escrow account of the policyholder with a reputed financial institution for safeguarding the process of transfer of the amount.