Financial planners and retirees are starting to embrace life settlements as a tool to generate income for seniors. Determining the value of a life insurance policy before starting a life settlement is an important first step in selling one’s life insurance. The value of a life insurance policy is affected by a numerous factors relating to the insured, policy and policy owner among other things.

The personal information of the insured is one of the most important factors in determining a life insurance policy’s value. Obviously the shorter the insured’s life expectancy, the more the valuable the policy becomes. The insured’s age, overall health, sex and even family history play a role in valuing a policy. These characteristics are evaluated by potential buyers and independent medical appraisers to project a life expectancy.

A policy’s value on the secondary market is also affected by the specific type of insurance policy it is. Whole life, Universal life and convertible term policies are commonly sold in life settlement transactions. While convertible term policies have a negligible market due to their risk of the term expiring before the policy matures. Often Universal life policies are the most valuable since they sometimes have accumulated cash value that can be used to pay premiums and the ongoing premium obligations are flexible.

Another important factor in valuing a life insurance policy are the owners themselves. If the owner has a divorce or bankruptcy on their record, some buyers may fear the policy will be claimed by a creditor or former spouse. The owner’s state of residence also affects a life insurance policy’s value. Since states regulate the secondary market of life insurance, some states are more restrictive than others about the transaction and investment aspect of a life settlement. The competitive environment that results affects the offers that buyers ultimately make to policy sellers.

Something that many people don’t consider as part of the life settlement appraisal process is the overall condition of the life settlement market. Although life settlements are an uncorrelated asset class, the industry is very much affected by economic conditions. The purchasers of life insurance policies on the secondary market are financial institutions. The ability of these organizations to purchase policies depends upon rates or return in other asset classes, liquidity and even current public opinion.

Policy owners that understand the factors contributing the value of their life insurance policy are more apt to maximize their asset’s value. By recognizing what makes a policy attractive and valuable they can better plan if and when to sell their life insurance.

Learn more about a life settlement. Stop by Kelly Ramirez’s site where you can find out the value of your life insurance policy with a life settlement appraisal.