What a company will pay for a policy depends on a number of factors, including the person's life expectancy, the size of the policy, the type of policy, the size of the premiums, and the insurance carrier's "rating."
The amounts that different companies will pay for the same policy may vary widely, so it's important to use a broker who will "shop around," says J.J. MacNab, an insurance analyst in Kensington, Md.
Regulations in many states provide a schedule of minimum payments for policies where the insured person is terminally ill. For example, if the life expectancy is 6 to 12 months, the payment might have to be at least 70% of the policy's death benefit, and if it's 24 to 36 months, it might have to be at least 50%.
For people with longer life expectancies, the amount paid is generally between 6% and 40%, says MacNab.
A 65-year-old who suffers from diabetes and related complications, for example, might get 20%, says Gary Chodes, president of Viaticus, a Chicago company that buys policies.
Each company will have its own doctor review the insured person's medical records. The whole process typically takes three to four months, says Morton Greenberg of Parker, Colo., who is a managing general agent for several companies that buy policies.
Here's how experts say a sale or potential sale of someone's life insurance policy can be useful in estate planning, bankruptcy and divorce:
Continued: Estate Planning with Life Settlements
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