Candidacy for a life settlement depends on several factors. The most important aspects are age, policy size and policy type. Qualification is based on a buyer's willingness to pay for the policy and how much economic value is in the policy.
Ideal candidates for life settlements are seniors, age 65 and older. Age is an important factor because the insured's life expectancy is the most important variable in calculating a life settlement offer. All else equal, the shorter one's life expectancy, the more valuable the life settlement offer will be. Individuals who are younger than 65 but have a serious illness can also qualify.
The policy that is being sold generally must have a death benefit of at least $100,000. This is because buyers have a fixed due diligence cost structure for each policy and usually won't purchase smaller policies. As the industry matures, we expect buyers to become more amenable to purchasing smaller policies.
Policies must also have been owned for a minimum number of years. This number varies on a state by state basis. For instance in California, it is two years. This is to prevent individuals from taking out a policy for the sole reason of selling it. Exceptions can be made to this rule if there has been a material change in the insured's life, such as divorce, retirement, death of a spouse, etc. Again these exceptions vary on a state by state basis.
Finally, the policy must be a whole life, universal life or convertible term life policy. Standard term policies and premium financed policies generally do not qualify for life settlements. This is because of the additional investment risk inherent in these policy contracts. Group policies can also qualify if they are permanent or convertible term policies.
If you aren't sure whether your qualify, you can check if you qualify with our life settlement calculator.
Most the situations will fall into one of the three following categories: (1) the policy owner can no longer afford the cost of life insurance. (2) the policy owner needs additional liquidity for some other expense. (3) the policy owner no longer needs the coverage of life insurance.