In the United States, the third leading cause of death is from accidental or unintentional injury1
. Because of this, accidental death insurance policies are a popular form of coverage as they pay a lump sum in the event of the policyholder’s covered accidental death. However, accidental death differs from life insurance in many ways, including the possibility of settlement, or selling the policy for cash. Accidental death insurance is likely not eligible for settlement for a few different reasons.
How Life Insurance Settlements Work
Some Seniors find themselves in a financial pinch, looking for any way to help pay the bills. Some may just want a heftier retirement savings. In any case, many people find themselves trying to sell their life insurance policy through a process called life insurance settlement.
With life insurance, assuming the policy meets settlement requirements, policyholders are able to sell a life insurance policy to a third party for more than the policy’s cash surrender value, but less than its death benefit. A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured.
The settlement process for life insurance is based on the policy value. Determining the policy value depends on factors such as:
- Amount of the death benefit
- Remaining expected life of the insured
- The amount of premiums to be paid until the death benefit is paid
- The discount rate or investor required rate of return
Accidental Death Insurance May Not be Eligible for Settlement
Accidental death insurance is different from life insurance when discussing settlements for a few reasons:
- No cash value
Accidental death benefits are usually a one-time payout, so they normally don’t accrue cash value like most life insurance policies.
- Usually low cost
You may notice an accidental death policy offer that can be added to your current life insurance policy. Because accidental death insurance is typically low-cost, some businesses such as credit card companies use this benefit as an additional offer or perk for members. When you explore the idea of an insurance settlement, the cost of the policy plays a huge role in the policies eligibility.
Though life insurance settlement agreements make sense for some people who may be looking to obtain more cash, accidental death insurance is unlikely eligible for settlement.
Though life insurance settlement agreements make sense for some people who may be looking to obtain more cash, accidental death insurance is unlikely eligible for settlement. Due to its low cost and low value to the settlement company, many third party sellers may fear they would not see the return on investment with an accidental death insurance policy.
Center for Disease Control and Prevention, Accidents or Unintentional Injuries, 2017