Insurance settlement loans are usually applicable in cases where a plaintiff is awaiting an insurance settlement for some personal injury or loss. For instance, in cases of natural disasters, organizations like the U.S. Small Business Administration award financial assistance to people whose property has been devastated.
Insurance claim procedures can be a drawn-out process, especially where an element of doubt or ambiguity exists about the claim. The recipient may have to wait several years before the claim actually materializes into hard cash. In such cases, loans to tide the claimant over are generally obtainable.
The term insurance settlement loan is sometimes associated with the practice of turning eventual life insurance settlements into real and present money. This is also known as life settlement – a practice where a financing company actually buys the death benefits of an insured person’s life insurance policy. Once this is done, the company pays all future premiums on the policy and eventually collects the death benefits. The full value of the life insurance will not be given to the beneficiary, however. This is because the only way that the insurance settlement company makes their money is by buying at a lower rate now but collecting big later. Both parties stand to benefit from this arrangement.
Other insurance policies pay a lump sum on maturity, such as retirement benefit policies. If the beneficiary does not, for any reason, wish to wait for this period to elapse, this policy may be eligible for a loan by a financial institution.