Amidst persistent economic uncertainty and rising inflation, individuals across America are reevaluating their retirement strategies. The rapid surge in consumer prices are impacting everyone, but it's seniors and those nearing retirement who feel the pinch most. A recent survey by Motley Fool found that only 41% of people aged 60 and over feel financially prepared for retirement as they grapple with the challenges of sustaining themselves on fixed incomes that no longer stretch as far as anticipated.

For people planning to retire soon or retirees already attempting to stay afloat in a volatile market, your life insurance policy could be the lifeline needed for a diversified financial strategy. Throughout the years, misconceptions surrounding life settlements and their practicality have been prevalent. However, the reality is that given the appropriate conditions, opting for a life settlement and selling a life insurance policy to a third-party investor can provide access to cash when it’s needed mos. 

What is a life settlement?

A life settlement is the sale of a life insurance policy for a lump sum of cash, with the buyer assuming control of the policy and premium payments upon the closure of the transaction. The primary advantage of a life settlement lies in the substantial cash payout, often several times greater than the policy's surrender value. Moreover, the cash proceeds are unrestricted, though taxes may apply to a portion of the amount received, allowing you the freedom to utilize the remaining funds as desired.

How do you qualify for a life settlement?

Many seniors are pleasantly surprised by how uncomplicated it is to qualify for a life settlement. Contrary to common misconceptions, failing health or a terminal illness is not a prerequisite for eligibility. They are typically accessible to individuals aged 65 and above with policies valued at $100,000 or more, full confirmation of eligibility can be obtained through a policy review with a life settlement company. 

Additionally, there are no restrictions on how the funds from a life settlement can be utilized. Recipients have the flexibility to allocate the money according to their preferences. For many seniors, these funds offer relief from the escalating expenses of retirement. Whether it's reducing debt to alleviate fixed costs, covering long-term care expenses, meeting daily living needs, establishing an emergency fund, investing the proceeds, or indulging in home improvements or travel, the possibilities are varied and tailored to individual priorities.

Life settlements offer greater returns compared to surrendering

Policyholders facing the inability to afford premiums are often directed towards lapsing or surrendering their policy, but this isn't necessarily the most advantageous choice. When policyholders surrender their policy, they receive a check comprising the cash surrender value minus surrender fees. However, the drawback lies in the single offer presented by the insurance company, determined by factors such as the policy's duration and accrued interest, dividends, or capital gains. When policyholders lapse or surrender their policy, they miss the potential benefits of a life settlement, which can yield up to 60% of the total policy value. With inflation on the rise, seniors need to reassess their need for life insurance and make the best decision for themselves and their families. 

You can work with a broker or a provider

You have two options when pursuing the sale of your life insurance; you can decide between working with a life settlement broker or a life settlement provider to sell the policy. A broker's role is to market your life insurance to various buyers to secure the highest bid possible. Acting on your behalf, the broker holds a fiduciary responsibility to prioritize your interests. While you do compensate the broker through a commission deducted from the sale proceeds, typically, you have a better chance of gaining more cash due to a higher selling price. On the other hand, providers act on behalf of investors, aiming to purchase the policy at the most favorable price. The provider does not manage the details of the transaction the way a broker would. Even though working with a provider is a simpler process -- since there's only one offer -- the policyholder may have more coordination work to do.

Could a life settlement be the right move for you?

In the face of rising living expenses for seniors, life settlements are an increasingly valuable and feasible option for retirees. Utilizing this strategy to finance your retirement and/or medical bills could prove to be a lucrative decision worth exploring. To delve deeper into the possibilities or determine your eligibility for a life settlement, reach out to your insurance agent, financial advisor, or a licensed life settlement company to find out if life settlements are a part of the right financial strategy for you.

Lucas Siegel is the founder and CEO of Harbor Life Settlements, a life settlement company that is dedicated to helping seniors and the terminally ill sell their life insurance policies, and Harbor Life Brokerage, a life settlement broker that helps policyholders receive the maximum cash value for their life insurance through its proprietary bidding platform that reaches the world’s largest buyers.