There are many factors that determine eligibility for a life settlement. While you might find companies in the marketplace who will work with cases that fall outside of these guidelines, these are a good indicator for who is a likely candidate for a life settlement. The biggest three factors are:
If you are healthy, you generally have to be a minimum of 65 years old to qualify for a life settlement. Often times, it only works for the investor if you are in your 70s or older. But if you're 65 or older, you should check to see if it's an option. The older you are, the more valuable the policy is to a buyer.
If you're under 65, you still may be eligible to sell your policy if you are terminally ill. This is called a viatical settlement. Viatical settlements generally only work if you have a 2 year life expectancy or less. Viatical settlements are often able to provide policy owners with even higher settlement offers (sometimes 50% to 80% of the death benefit). A licensed provider (institutional buyer of policies) will often pull your medical records and run a life expectancy report based on these records to determine what they can offer you for your policy.
You must have a whole life, universal life or convertible term life policy to sell. This covers a large portion of life insurance policies. The larger the policy and the older that you are, the more valuable the policy is to the life settlement marketplace. The minimum policy size to generally sell is $100,000 in face value. There is no cap on the size of the policy that you can sell - Ovid has helped consumers with as high as $5 million policies find buyers.
In addition to the type and size of the life insurance, the premium costs need to be affordable enough to justify a purchase of the policy. This is because the buyer of your life insurance will assume responsibility for paying the premiums going forward to keep the policy in force.
This is often an issue with convertible term insurance and universal life insurance, as both can lead to drastically rising premium costs. This is unfortunate because rising premium costs can often be the reason that you are interested in selling your policy in the first place. A licensed provider will look at your life insurance illustration (the document which shows your policy cost going forward) and run it through a mathematical model to determine what offer they think is affordable on the buyer's part while affording the premium cost going forward.
Insurance is a risk contract for both the issuer of the insurance policy, but also for the policyholder. You are taking the risk that the insurance company is going to be able to pay a claim when the time comes to pay the claim. Just as you assume that risk when you buy life insurance, they buyer of your policy is assuming the risk that the life insurance company can make good on its claims in the future when they need to collect the death benefit.
Because of this, buyers generally pay more or exclusively buy life insurance policies issued by quality companies with high ratings. If you're curious, you can review your carrier's ratings here at the rating agency.
You must be a citizen and resident of the United States. This is important for a few reasons. Other countries may have different regulation when it comes to the legality of life settlements. For instance, most provinces of Canada prevent the sale of life insurance.
In addition, one of the requirements when selling your policy is that a licensed representative of the buyer is able to check in quarterly to see if you are alive - and sometimes get an update on your health status for their financial projections (your health influences their financial performance). It is easy to track someone's life and get in contact with that person in the United States. It may be more difficult to track your health and get in contact with you if you live outside of the United States.
If you're curious about your eligibility, you can use this life settlement calculator to instantly estimate your eligibility and what your policy might be worth