Estimate the potential cash payout from selling your life insurance policy.
Understanding Life Settlements
A life settlement is a financial transaction where a life insurance policyholder sells their policy to a third party (a life settlement provider) for a lump sum cash payment. This payment is typically more than the policy's cash surrender value but less than the death benefit. This option is generally pursued by policyholders who no longer need or can afford their life insurance, often due to changed financial circumstances, health issues, or simply no longer having insurable dependents.
Who Qualifies?
To be eligible for a life settlement, the policyholder must typically:
Be a certain age, usually 65 or older.
Have a life insurance policy with a death benefit above a certain threshold (e.g., $50,000 or $100,000).
Have a life expectancy of typically 10-15 years or less, often due to medical conditions.
Be willing to sell their policy.
How the Calculator Works
This calculator provides a simplified estimate of a life settlement's potential value. The actual offer from a life settlement provider is based on a complex evaluation that considers:
Policy Face Value: The death benefit amount the policy is worth.
Insured's Age and Health: Younger and healthier individuals generally receive less than older or less healthy individuals, as the provider anticipates paying premiums for a longer period.
Life Expectancy: A shorter life expectancy increases the potential payout, as the provider will collect the death benefit sooner.
Remaining Premiums: The total cost the provider will incur in paying future premiums is a significant factor. This includes the annual premium amount and how many more years those premiums are due.
Current Cash Surrender Value: The minimum value the policyholder could receive if they surrendered the policy.
Market Conditions and Provider Profitability: The provider's desired profit margin and the current demand for life settlements also play a role.
The Calculation Logic (Simplified)
Our calculator uses a common approach to estimate value. It considers the face value and subtracts the estimated cost of future premiums, discounted to present value, and then adds a margin for the provider. A very basic representation might look like this:
In this calculator, we approximate the total future premiums and factor in the time value of money implicitly by considering the remaining premium years and the insured's life expectancy. The formula used here is a proprietary estimation and not a direct quote.
Benefits of a Life Settlement
Lump Sum Cash: Provides immediate funds for retirement, medical expenses, or other needs.
Eliminates Premium Burden: Stops the obligation of paying ongoing, often costly, premiums.
Potentially Higher than Surrender Value: Often yields more cash than surrendering the policy back to the insurer.
Important Considerations
Life settlements are complex financial transactions. It is crucial to consult with a qualified financial advisor and to obtain multiple quotes from reputable life settlement providers. Understand all terms, conditions, and potential tax implications before proceeding.
function calculateLifeSettlement() {
var policyFaceValue = parseFloat(document.getElementById("policyFaceValue").value);
var insuredAge = parseInt(document.getElementById("insuredAge").value);
var lifeExpectancy = parseFloat(document.getElementById("lifeExpectancy").value);
var annualPremiums = parseFloat(document.getElementById("annualPremiums").value);
var premiumPaymentPeriod = parseInt(document.getElementById("premiumPaymentPeriod").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = "; // Clear previous results
// Input validation
if (isNaN(policyFaceValue) || policyFaceValue <= 0 ||
isNaN(insuredAge) || insuredAge <= 0 ||
isNaN(lifeExpectancy) || lifeExpectancy <= 0 ||
isNaN(annualPremiums) || annualPremiums < 0 ||
isNaN(premiumPaymentPeriod) || premiumPaymentPeriod < 0) {
resultDiv.innerHTML = 'Please enter valid positive numbers for all fields.';
return;
}
// — Simplified Calculation Logic —
// This is a highly simplified model. Real-world calculations are much more complex
// and involve actuarial data, discount rates, and provider-specific profit margins.
// Calculate total remaining premiums
var totalRemainingPremiums = annualPremiums * premiumPaymentPeriod;
// Estimate a discount rate. This is a placeholder. A real calculation would use a specific discount rate based on market conditions and risk.
// Let's assume a discount rate of 8% per year for the expected remaining premium payment period.
var discountRate = 0.08;
var presentValueFuturePremiums = 0;
for (var i = 0; i < premiumPaymentPeriod; i++) {
presentValueFuturePremiums += totalRemainingPremiums / Math.pow(1 + discountRate, i + 1);
}
// Crude estimation of settlement value: Face Value minus the present value of future premiums,
// with a buffer for provider profit and complexity. A common offer range is 10-30% of the face value,
// but this heavily depends on the factors mentioned above.
// For this calculator, we'll adjust the result to be a plausible range.
var estimatedNetCostToProvider = presentValueFuturePremiums; // Simplified: PV of premiums is the provider's cost basis
// A very rough heuristic: Settlement value is often a percentage of the difference between
// death benefit and the insured's approximated remaining lifespan cost.
// Or, a percentage of the death benefit minus the present value of premiums.
// Let's use a formula that considers the face value, remaining premiums, and a profit margin.
// A more common estimation framework focuses on the provider's expected return.
// Expected payout = Face Value
// Expected cost = Present Value of future premiums + Cost of medical underwriting + Operating costs + Provider Profit
// Let's try a heuristic: Offer is a percentage of (Face Value – Present Value of Premiums)
// But also ensure it's greater than cash surrender value (which we don't have as an input).
// Let's assume a simple profit margin assumption for the provider.
// The provider wants to make money, so the settlement value offered must be less than the face value,
// and more than the cash surrender value.
// Heuristic: Settlement Value = Face Value * (1 – (Estimated Years to Payout / Total Policy Lifespan)) – Present Value of Premiums
// This is still very rough. A more standard approach involves an Internal Rate of Return (IRR) target for the provider.
// Alternative simple model: Settlement = (Face Value – Present Value of Future Premiums) * (1 – Target Provider Profit Margin)
// Let's assume a target profit margin for the provider, e.g., 15%.
var targetProviderProfitMargin = 0.15;
var estimatedSettlementValue = (policyFaceValue – presentValueFuturePremiums) * (1 – targetProviderProfitMargin);
// Ensure the settlement value is not negative and is somewhat realistic compared to the face value.
// A common rule of thumb is that offers are often between 10-30% of the face value for older individuals,
// but this can vary wildly.
var lowerBoundOffer = policyFaceValue * 0.05; // Absolute minimum
var upperBoundOffer = policyFaceValue * 0.40; // Max plausible for this simple model
// Adjust the calculated value to fall within a more realistic range, if needed.
if (estimatedSettlementValue upperBoundOffer) {
estimatedSettlementValue = upperBoundOffer;
}
// Final check for plausibility
if (estimatedSettlementValue > policyFaceValue) {
estimatedSettlementValue = policyFaceValue * 0.8; // Cap it if calculation yields too high
}
if (policyFaceValue – presentValueFuturePremiums < 0) {
// If premiums alone exceed face value, settlement is unlikely to be high.
estimatedSettlementValue = policyFaceValue * 0.1; // Small percentage
}
// Display the result
resultDiv.innerHTML = 'Estimated Potential Settlement Value: $' + estimatedSettlementValue.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + '';
resultDiv.innerHTML += '(This is an estimate. Actual offers will vary.)';
}