Let’s imagine you were trying to build a simple life settlement calculator. It would have a few inputs – preferably less than ten, hopefully, less than six -and it would produce an estimate of what a life insurance policy could be worth if sold in a settlement.
It would probably look a lot like financial calculators found everywhere on the internet. They usually help us find out how much mortgage we can afford, how much we can save by consolidating debt, or what our monthly car payment would be; all on the go.
These calculators tend to be broadly accurate because they deal with easily accessible and easily knowable features: the price of the car or the home you’re trying to buy, prevailing interest rates, and maybe even your credit score.
To estimate the potential value of a life settlement, you need to navigate two hard-to-access and hard-to-know features: the characteristics of the life policy and the health of the insured.
These two features are hard-to-access because a policy’s original certificate may be outdated or lost and the details of a policy may only lie with the carrier. On the health side, despite recent advances in medical records digitization, the key to understanding the insured’s health often still lives in paper records.
These two features are also hard-to-know. First, even with an in-force policy illustration in hand, a policy may have a few key details that could significantly affect the settlement price – for example, missed or misunderstood riders or conversion terms.