30-second summary
When your client chooses to surrender their life insurance policy to the insurer who issued the policy for its cash surrender value, they may receive less money than they otherwise could. Their life insurance policy is an asset they own, and just like any other personal property, it has a fair market value.
This article will let you know how a life settlement may be able to put more money in your client’s pocket than what their life insurance company is willing to pay them. There are investors who buy life insurance policies, often for more than a policy’s surrender value.
If you’d like to learn more, contact us today to find out how your client can receive a free policy valuation (and potentially an offer to purchase the policy) reflecting their policy’s fair market value.
If your client has owned a permanent life insurance policy for more than one year, they’ve received an annual policyowner statement containing important information, such as the amount of premiums they’ve paid that year and the policy’s cash value (the amount they can withdraw or borrow from the policy). If you sold them that life insurance policy, you likely have copies of their annual statements or have access to them.
Another important column in the statement is “Cash Surrender Value.” This is the amount of money the life insurance company will pay your client if they return the policy to them. It’s essentially “cashing in” the policy.
As their advisor, you can also check into alternatives that may pay more for their policy than the insurer will. That’s where “fair market value” enters the picture.
What is fair market value?
According to the IRS, “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, with neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.”
If you’ve ever done an inventory of your possessions for insurance purposes, the price you listed wasn’t your purchase price; it was the fair market value or the cost to replace the item.
For example, if you listed a rare coin you purchased many years ago for $1,000 but had it valued yesterday by a numismatist at $10,000, and he was willing to pay you that much for it, what would the fair market value be? You’re correct if you said “$10,000.” It clearly meets the IRS’ definition.
Your client’s life insurance policy has a fair market value
Just as there are investors who are interested in purchasing homes, there are also investors who have a keen interest in buying life insurance policies from people who prefer to receive their policy’s fair market value rather than simply surrendering it to the insurance company.
Any tangible asset your client owns has a fair market value, including their life insurance policy. Determining its value can be quickly done by a life settlement company that will provide them with life settlement quotes, which will be the policy’s fair market value.
Getting life settlement quotes
When your clients have bought insurance in the past, whether home or car insurance, health insurance, or life insurance, they worked with an insurance professional that presented them with several options for different policies. Life settlement quotes work the same way.
When you have a client interested in selling their life insurance policy, a life settlement company determines the policy’s fair market value by gathering policy and health information and determining how long the policy will likely remain in force before paying a benefit to the new owner. If the sum of the cost to maintain the policy plus the expected return on investment for the new owner is lower than the policy’s death benefit, the difference in those two values is what the life settlement company can offer as the purchase price for the policy.
There are several advantages to working with a life settlement company.
First, your client has options. A life insurance policy is a valuable asset. Getting life settlement quotes instead of accepting an insurer’s surrender value at first glance provides your client with multiple options to receive a fair price for their policy.
Second, they will receive the most money possible for their policy. A licensed life settlement company’s offer is often the best option. Why settle for less?
Explore a life settlement with Lighthouse Life
If you want to learn more about fair market value and life settlements for your clients, contact us, and one of our experienced life settlement experts will be happy to speak with you about your client’s situation and needs. We’ll help them receive the most cash for their life insurance policy as quickly as possible.
