Maintain Policy:
An alternative to life settlement is keeping and maintaining a life insurance policy. This alternative requires the continuation of premium payments, however, there is often an option to decrease the face amount of a life insurance policy which results in a lower premium. While reducing the face amount may help maintain a policy, keep in mind through a life settlement there is the option for a retained death benefit (RDB) offer. This type of offer allows a policy owner to maintain a portion of the life insurance policy face amount with no obligation to continue premium payments. RDB offers are typically higher than cash offers because the offer pays out when the policy matures, and is taken out of the life insurance policy face amount payment.
Lapse Policy:
Letting a life insurance policy lapse for no value is another alternative to life settlement. While a life settlement offer is never guaranteed, if an insured meets life settlement eligibility criteria an offer may be obtained. Realizing the difference between letting a policy lapse for no value and a life settlement that can provide significant value makes the alternative of lapsing a life insurance policy without considering life settlement hard to justify.
Surrender Policy:
For life insurance policies with Cash Surrender Value (CSV) a policy owner can surrender the policy in exchange for a payout of the CSV from the insurance carrier. A life settlement offer must always exceed the CSV, otherwise it would be more advantageous for the policy owner to surrender the policy to the insurance carrier.