Like life insurance policies, life settlements also come in different forms. While many people know what a life settlement is, not many known that there are different types of life settlement options. While we talk about types of life settlements, it is possible that some of these are not applicable for your state. Some states might not permit some of these life settlement types.
The decision to go for a certain kind of life settlement is solely the discretion of person selling the life insurance for cash. The life settlement company or the insurance department can help you find out which types of life settlements are available in your state. With all of that being said, here’s a list of the common types of life settlements that you should know about.
Traditional life settlements
When people talk about life settlements, they mostly refer to traditional life settlements; which are the most common type. A traditional life settlement means selling your life insurance policy to a life settlement provider. It is the settlements provider who then compensates for the insurance policy through cash. They calculate the value of the life insurance based on the worth of the insurance policy.
Once the life settlement provider buys your life insurance policy, you no longer have to pay the premium. Instead, the buyer pays the premiums and in return gets the death benefit of your life insurance policy.
Since you already sold your life insurance policy to a buyer, you or the person entitled to get the death benefit would obviously not receive it; as you have already sold your life insurance policy to a third party.
Hybrid life settlements
A hybrid life settlement, pretty much like the name talks for it is a combination of kinds of compensation that the seller receives upon cashing their life insurance policy. If you go for a hybrid settlement, you can receive a hybrid of retained death benefit and traditional life settlement for the insurance policy that you sell.
This type of life settlement is a good option for people who need a certain amount of cash but don’t want to liquidate the entire value of the life insurance policy. By availing this option, the seller would get a bit of the cash, and a certain value of the death benefit would be retained as well.
Retained death benefit
The third kind of life settlement is retained death benefit. When you sell off your life insurance policy, the buyer will start paying the premiums. However, you won’t get instant cash if you go for a retained death benefit. Instead, after your death, the policy beneficiary would get a part of the death benefit, and the buyer would get a part of the death benefit as well.
The advantage of a retained death benefit is that the buyer, that is, a life settlement providing agency or its financing entity would start paying the premiums for you. Each year, the cost of the premium goes on increasing. This becomes one of the major financial commitments for many people who have a life insurance policy. This kind of life settlement is a good option for people who find premiums to be too expensive to pay each year. That way, you no longer have to pay for the premiums, and the death beneficiary would still get the death benefit worth the premium you have paid.
These are the three most common type of life settlements. Based on your needs and the kind of life settlement available in your state, you can opt for what suits you the best. For people who are in an urgent need of instant cash to meet medical expenses, pay off debts, or whatever reason, a traditional life settlement is the best option.
However, for people who just want a chunk of the life insurance policy value would rather go for a hybrid life settlement. This unlocks a certain amount of the value of life insurance in the form of instant cash and the rest would still be retained as a death benefit. Finally, for people who are only trying to evade paying heavy premiums, can opt for a retained death benefit, which would lift off the burden of spending on premiums.
Does proper research, know your needs, and find the process of buying life settlements that would make the process smooth. Being aware of the types and eligibility for each kind would help you get the best deal without a hassle. Also, make sure you choose the right life settlement company that has a good reputation.