If spring cleaning is a part of your annual ritual, then tidying up your financial house may also be part of your regimen.

And, as part of that evaluation, consumers may be deciding whether or not they need their life insurance contracts. For those who think that the answer may be ‘no,’ representatives of both the life insurance and life settlement industries have some suggestions on basic steps that need to be taken to ensure the right decision is made and the greatest value is realized if that decision is to sell a life insurance contract.

"We understand that some people may seek a life settlement when their need for life insurance ceases,” says Whit Cornman, a spokesperson for the American Council of Life Insurers, Washington. “With any financial transaction, it's important that they [contract holders] employ due diligence before making such an important decision. This includes speaking with their life insurance company or agent to explore their options." One reason that such contact is important is that there are options that life insurance companies may be able to offer that may be an alternative to a life settlement, he says.

Doug Head, executive director of the Life Insurance Settlement Association in Orlando, Fla., says that one thing that anyone considering a life settlement should do is to acquire a solid understanding of the vocabulary of terms associated with the sale of life insurance contracts. And those who are pondering a settlement should also be aware of the laws in their state. He says that LISA’s website provides information on state regulation.

It is also critical, Head asserts, that anyone selling a life insurance contract understand the compensation arrangement and that although there is a cost associated with working with a broker, the experience often helps policyholders receive better offers.

The first major piece of advice that Brian Staples, president of Right LLC and a former regulator with the Kentucky insurance department, offers is to make sure that the person who will be helping you settle a contract is licensed. Once this is determined, policyholders need to dig deeper and ask how many transactions that professional has completed and find out as much information about compensation as one can gather. For instance, Staples says, a potential settler should ask a broker what percentage of the face amount of the policy or what percent of the offer will be comprised of commission. Some companies might take a flat fee plus a percentage in excess of the surrender value, he explains.

Potential settlers should also be told about two revenue rulings released on May 1 -- Rev. Rulings 2009-13 and 2009-14, which impact how the sale and purchase of life insurance contracts are treated: ordinary income or capital gains. Brokers should, and in all likelihood will, now disclose the potential tax implications of these new rulings, Staples says.

And, Staples cautions no one should participate in a transaction in which they are offered an inducement to buy a policy with the intention to sell. Such policies are called stranger-originated life insurance. STOLI is a curse word for both life insurers and the life settlement industry.