Dear Savvy Living,

I am a 73-year-old widow and have been thinking about dropping my life insurance policy because I really don't need it any longer. A friend of mine recently suggested that I sell my policy to a life settlement company, but I don't know anything about this. Can you tell me about this option and if it's a good idea?


Dear Unsettled,

Life settlements are a tempting offer for seniors who no longer need their life insurance - perhaps because their beneficiaries have died or they can't afford to keep up the premiums. Here's what you should know.

Life Settlements

A life settlement is the sale of an existing life insurance policy to a third party company for cash. Life settlements are typically best suited for seniors over age 65 with health problems. Historically, if an owner of a life insurance policy decided they no longer needed the policy, they could elect to cancel it and receive the policy's cash surrender value from the insurance company. But now, with the life settlement option, you can actually sell your life insurance policy for more than its cash surrender value, but less than its net death benefit. Once you sell it, however, the life settlement company then becomes the new owner of the policy, pays the future premiums and collects the death benefit when you die.

Savvy Note: Viatical settlements are similar to life settlements but are available to those who are terminally ill with a life expectancy of less than two years.

How Much?

How much money you will get in your life settlement will depend upon a number of factors including your age, medical condition/life expectancy, the type of insurance, the rating of the insurance company, the cost of the premiums and the value of the policy. For example, a 70-year-old with a life expectancy of 10 years, and a $250,000 life insurance policy (depending on the premium) could get up to around $40,000.

Consumer Tips

If you're interested in a life settlement here are some tips to consider.

• Comparison shop: Get quotes from a broker or several life settlement companies to make sure you have a competitive offer and find out what fees or costs you will be required to pay.


• Tax implications: Life settlements are usually tax-free up to the amount you have paid in life insurance premiums during the life of the policy. However, the balance over that amount is taxable. Consult your tax advisor.


• Fraud protection: Life settlements are not regulated in every state, so be careful. Make sure the life settlement company or broker that you're dealing with is either licensed in your state or is a member of the Viatical and Life Settlement Association of America.

Other Options

If you are selling your life insurance policy to get cash to pay for expenses, there are other possible options you should consider.

• Cash value: Ask your insurance agent if you have any cash value in your policy. If so, you may be able to use some of the cash value to meet your immediate needs and keep your policy for your beneficiaries. You may also be able to use the cash value as security for a loan.


• Accelerated benefit: Find out if your life insurance policy has an accelerated death benefit, which typically pays some of the policy's death benefit before you die.


• Reduce premiums: If paying the premium has become a burden, there are various ways to reduce it. Ask your insurance agent about the possible options.

Savvy Resources

• National Association of Insurance Commissioners: Offers consumer information, protection and links to every state insurance department. Visit www.naic.org or call 816-783-8500.


• Viatical and Life Settlement Association of America: A trade association that offers information, answers questions and provides a referral service to brokers and companies that offer life or viatical settlements. Call 407-894-3797.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Senior" book. The articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070.