What is a Life Settlement?

Before diving into the timeline, let’s briefly explain what a life settlement is. A life settlement involves selling your life insurance policy to a third party, usually a life settlement provider or investor, for a lump sum of cash. The amount you receive is typically higher than the policy’s cash surrender value but less than the death benefit. The buyer takes over the premium payments and collects the death benefit when the insured passes away. Life settlements are typically for older policyholders or individuals with declining health who no longer need their policy or want to access its cash value.

Factors that Impact the Length of a Life Settlement

The time it takes to complete a life settlement can vary from one person to the next, and several factors play a role:

1. Health Status: The insured’s health is one of the most important factors. Typically, life settlement providers are more interested in policies where the insured has a shorter life expectancy. Medical underwriting can take time, as providers will want to gather and review medical records thoroughly.
2. Policy Type: Not all life insurance policies are equally attractive to buyers. Universal and whole life policies are often easier to sell because they accumulate cash value. Term policies may be eligible but generally require conversion to a permanent policy first.
3. Policy Size: Larger policies (with higher death benefits) tend to attract more interest, which can speed up the process. Policies with death benefits of $100,000 or more are usually the most marketable.
4. Provider or Broker: The expertise of the life settlement broker or provider you work with can also impact how long the process takes. A well-connected, experienced broker can help expedite the process by matching you with the right buyer quickly.
5. Documentation and Review: The speed with which you provide the necessary paperwork and how quickly the buyer can conduct their due diligence also affect the timeline.

Now that we’ve covered what can affect the length of time, let’s go step-by-step through the typical life settlement process and how long each stage may take.

Step-by-Step Breakdown of the Life Settlement Process

1. Initial Consultation (1-2 Weeks)

The first step in the life settlement process is usually an initial consultation with a life settlement broker or provider. During this consultation, you’ll discuss your policy and personal circumstances to determine whether a life settlement is a good fit for you. You may also be asked to fill out a brief questionnaire about your health and policy details.

The initial consultation phase can take anywhere from a few days to a couple of weeks, depending on how quickly you can provide the necessary information and how quickly the broker or provider can assess your situation.

2. Medical Underwriting (3-6 Weeks)

Once the consultation is complete and you decide to move forward, the next step is medical underwriting. This is where things can slow down a bit. The life settlement provider will request your medical records and review them to assess your life expectancy. This part of the process can be lengthy, as it often involves gathering records from multiple healthcare providers.

On average, medical underwriting can take anywhere from three to six weeks. Delays can occur if your medical records are not promptly provided, so it’s essential to be proactive in ensuring your doctors send your records quickly.

3. Policy Valuation and Offers (2-4 Weeks)

After the medical underwriting is complete, the life settlement provider or broker will value your policy. They’ll consider your life expectancy, policy details, and current market conditions. Based on this information, they’ll solicit offers from potential buyers.

This phase usually takes around two to four weeks, depending on market interest and the specifics of your policy. Once offers are received, your broker will present them to you, allowing you to choose the best offer.

4. Offer Acceptance and Contracting (2-3 Weeks)

After reviewing the offers, you’ll decide whether to accept one. If you accept an offer, the next step is the contracting phase. This involves drafting and signing the necessary documents to transfer ownership of the policy to the buyer. You’ll need to review the contract carefully and may want to consult with an attorney to ensure everything is in order.

The contracting phase typically takes two to three weeks. However, it can be shorter or longer depending on how quickly all parties sign the documents and complete any additional due diligence.

5. Transfer of Ownership and Payment (1-3 Weeks)

Once the contracts are signed, the life settlement provider will notify the insurance company of the ownership transfer. The insurance company must acknowledge the change before the transaction is finalized. After confirmation, you’ll receive your lump-sum payment.

The final step, including the ownership transfer and payment, usually takes one to three weeks.