The amount of the settlement that is received will be impacted by the following factors. Understanding these factors will help you make decisions regarding your policy, and if it is advisable to sell it:
- The insured’s life expectancy – The shorter the period until the insured is expected to die, the more the settlement company will pay.
- The period in which the company can contest the existence of a valid contract must have passed – The incontestable period, as well as the suicide provision (typically two years), generally must have expired. This period may begin again for policies that have been reinstated after a lapse for nonpayment of premium.
- Company’s financial rating – The company that issued the policy must have a high financial rating.
- The amount of the premiums – The premium level is important, since the buyer of the policy must continue making the payments for the remainder of the insured’s lifetime.
- The size of the policy – Most settlement companies have upper and lower limits. For example, for viatical settlements a top limit of $1,000,000 scaling down to a minimum of $50,000 is typical. For life settlements the death benefit must generally be at least $250,000, and some providers will only consider policies of $1 million or more.
- The current prime interest rate – The prime rate is important, since the buyer will compare the settlement agreement to other types of investments.
- Time of payment – The time between applying for the settlement and having the cash is generally three to eight weeks (but can be as long as six months). However, this will depend on how quickly the medical information, life expectancy reports, beneficiary release forms, etc. are in the hands of the settlement company.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM