Life Settlement Calculator

A life settlement calculator is a tool that estimates the potential lump-sum value a policyholder might receive by selling a life insurance policy to a third party, by discounting the policy’s death benefit to present value, subtracting the present value of future premiums, and applying a market offer percentage to reflect transaction realities.

How to use the Life Settlement Calculator — step-by-step guide

Quick overview

This life settlement calculator helps policy owners and advisors estimate a possible market offer for an existing life insurance policy. It balances two main present-value components: the discounted death benefit and the discounted future premiums necessary to keep the policy in force until the estimated life expectancy. A market offer percentage models the real-world gap between a pure theoretical value and what a buyer would actually pay.

Inputs you’ll provide (and why they matter)

• Policy Face Value ($) — The death benefit paid when the insured dies. This is the single largest number and the base for the payout calculation.
• Annual Premium ($) — The yearly premium required to maintain the policy. Future premium obligations reduce the net value of a sale.
• Life Expectancy (years) — An estimate of the insured’s remaining lifetime. Shorter life expectancy increases the present value of the death benefit and generally increases offers.
• Discount Rate (annual %) — The percentage used to convert future cash flows (death benefit and premiums) into present value. It represents time value of money and buyer risk expectations.
• Premium Escalation (%/yr) — Expected annual growth in premium costs (carrier hikes or inflation). Rising premiums reduce settlement value.
• Market Offer (% of model value) — The real-world percentage buyers typically offer relative to the theoretical model. This reflects broker fees, profit margin, due diligence risk, and market liquidity.

What the calculator computes

• PV of Death Benefit: The policy’s face value discounted back to today at the chosen discount rate for the chosen life expectancy.
• PV of Premiums: The present value of future premium payments (including optional escalation).
• Model Settlement Value: Calculated as PV of Death Benefit minus PV of Premiums. This is a simplified theoretical value of the policy to a rational buyer.
• Estimated Offer (market): The model value adjusted by a market offer percentage to reflect what you might actually expect in the marketplace.
• Sensitivity Chart: Visualizes how estimated offers change when the discount rate changes — valuable for assessing how sensitive the result is to rate assumptions.

Step-by-step: Using the calculator in WordPress

1. Embed the code: Paste the single-file HTML/JS code into a WordPress “Custom HTML” block or your theme’s custom code area. The tool is responsive and constrained to 760px max-width to fit between sidebars on typical themes.
2. Enter the policy details: Fill in the face value, annual premium, and life expectancy.
3. Choose discount and premium growth rates: Enter a discount rate that you believe reflects buyer expectations (e.g., 6%–10% depending on market conditions) and expected premium escalation.
4. Set market offer percentage: Move the slider to reflect likely market offers — a typical range is 40%–110% depending on buyer demand and insured health.
5. Click ‘Calculate’: The tool instantly displays PV of death benefit, PV of premiums, the theoretical model value, and an estimated market offer. Charts update to show breakdown and sensitivity.

Interpreting results — practical tips

• If PV of premiums exceeds PV of death benefit: The model value will be zero and no settlement is likely. This may happen when premiums are very large relative to the face value or life expectancy is long.
• Market Offer vs Model Value: The market offer slider is critical. A small model value can still produce a meaningful cash offer if buyer demand or pricing dynamics are favorable.
• Use sensitivity plots: The sensitivity chart shows how small changes in discount rates dramatically affect values; use this to test conservative and optimistic scenarios.
• Round-trip check: Compare the calculated offer to quoted brokerage offers, if available. Use the tool’s outputs to validate whether offers are reasonable.

Assumptions and limitations

This calculator intentionally uses a simplified, transparent approach: a single discounted death benefit and a present value of premium outflows. Real-world life settlement valuations are more complex and incorporate:

• Detailed mortality tables and underwriting.
• Probabilistic timing of death (not a single-point life expectancy).
• Transaction costs, broker fees, taxes, and legal expenses.
• Variations in premium payment schedules and policy riders.
  Use this tool for initial screening and educational purposes — not as a legally binding appraisal.

Best practices for getting the best offer

• Gather accurate documents: Policy illustration, premium schedule, and medical records speed due diligence.
• Work with reputable brokers: Brokers specializing in life settlements can help navigate bidders and verify offers.
• Compare multiple offers: Market liquidity varies. Multiple bids will help identify true market value.
• Be realistic about life expectancy: Overly optimistic estimates can lead to inflated expectations and wasted time.

Accessibility & embedding tips

• For WordPress, insert the tool into a single-column content area for the best fit.
• If you use page builders, paste the HTML into an HTML element or custom code widget.
• The tool includes Plotly.js via CDN so no extra plugins are required. Ensure no Content Security Policy on your host blocks the Plotly CDN.

Frequently Asked Questions (FAQ)

Q1: Is this calculator an official valuation?
A1: No. It provides an indicative estimate using a simplified model. A full valuation requires underwriting, mortality analysis, and buyer due diligence.

Q2: Why does the discount rate matter so much?
A2: Discounting reduces future payments to today’s dollars. Small changes in rate alter present values significantly, especially when life expectancy is long.

Q3: What is a reasonable market offer percent?
A3: Market offers vary widely. Typical ranges used in the tool (40%–110%) reflect conservative to aggressive market scenarios; actual offers depend on insured health, policy type, and buyer appetite.

Q4: Can this model account for irregular premium schedules?
A4: The current tool assumes annual level premiums with optional annual escalation. For irregular schedules, you’ll need a custom version that accepts yearly premium inputs.

Q5: How should I estimate life expectancy?
A5: Use a professional life expectancy estimate from an actuary or life settlement provider when possible; a physician’s prognosis or published life tables (adjusted for health) can also be used.