The most important question is often, “How much can I get for my policy?” While instant valuation is helpful, how the policy is valued depends on the health covered and the specifics of the policy. Policies with exceptionally low premiums may get high offers, while policies with very high premiums may struggle to get any offers at all. The only way to know what the true fair market value of a life insurance policy is requires you to complete a life payment application and complete a full settlement.
How does pricing work?
When evaluating a life insurance policy as a potential investment, the internal rate of return (IRR) is used as a performance measure. The importance of accurately determining life expectancy requires obtaining one or more life expectancy reports. Combined with the projected current premium payments, this allows the IRR to be determined. Most funds aim for an IRR of 12%-15% to compensate for inaccurate life expectancy estimates.
For this reason, a fairly healthy 72-year-old may receive a low offer, as the fund expects to pay a premium over the next 15 years and still needs to show some return. It’s important to note that a fund receiving $100,000 in 3 years is very different than $100,000 in 15 years. The time value of money comes into play, so the bid amount is not relative to the amount committed, it is relative to the annual return taking into account the time value of money.
How to maximize your offer.
The best way to maximize the value of your life insurance policy is to work with a licensed professional who can navigate the process and ensure you receive the most appropriate life expectancy statements and the most comprehensive fund network as part of the process.
