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There are numerous reasons to consider selling a life policy:
-the premiums are no longer affordable
– the need to replace lost income in case of death of the insured no longer exists
– the need for funds to pay estate taxes no longer applies
– there is a need for resources to pay for health expenses and long-term care
– a term policy may be reaching the end of the coverage period
– the insured wants funds to improve a retirement lifestyle
The sale of a life policy is not for everyone. There are alternatives other than selling a policy that may be appropriate for a policy owner’s circumstances:
– keep the policy in force through a loan or use of the cash surrender value
– seek an accelerated death benefit, if available
– assign the policy as a gift or charitable contribution
– covert a term policy to permanent insurance
– reduce the death benefit with a lower face value and lesser premium
– lapse or surrender the policy
Step 1: Discovery
Policy owner realizes that his/her life insurance policy is an asset that can be sold.
Step 2: Representation
If a life settlement is determined to be the best option, the policy owner or the advisor contacts a life settlement provider, or interacts with their trusted advisor to contact us to discuss the possibility of a life settlement.
Step 3: Application
The policy owner will be required to fill out an application and provide policy, ownership, and insured information including a list of physicians and/or medical records for review.
Step 4: Underwriting
Any and all medical information available on the insured will be submitted for review by medical experts to determine the insured’s life expectancy. These reports are developed by in-house and independent companies.
Step 5: Analysis
A detailed analysis of your policy is performed by multiple bidders. Different factors are considered when valuing a policy, including contract specifics such as premium expense, death benefit, and carrier ratings, as well as insured information such as age and life expectancy.
Step 6: Offer
A reputable broker or provider will seek multiple bids from various investors to seek the highest possible bid for the policy owner. The policy owner can accept or decline any offer once discussed with the licensed settlement broker or provider.
Step 7: Purchase and Sale Agreement
If the policy owner accepts an offer from a licensed broker or provider, a purchase and sale agreement and other documents formalizing the transaction will be prepared. The policy owner, insured person, and beneficiaries then sign this package. Once due diligence is complete, the funds for the settlement transaction are then placed in an escrow account.
Step 8: Notification
The insurance carrier is notified of the change of policy ownership and beneficiary to the new owner, the provider.
Step 9: Funds Transfer
Upon written verification of the change of ownership and beneficiary, the escrow agent releases the settlement payment to the seller of the policy.
– lapse
– surrender
– accelerated death benefits
– assignment of the policy as a gift
– replacement/1035 tax-free exchange
– conversion of the policy from a term policy to a permanent policy
– conversion of the policy to obtain a long-term care health insurance coverage
– maintenance of the policy through loans using the policy or its cash surrender value as collateral
The amount received from selling a policy will always be greater than the cash surrender value but less than the policy’s face value. The amount you get varies and depends on many variables including, but not limited to, the future premiums required to keep the policy in force, the insured’s life expectancy, and the policy’s face value.
A life and viatical settlement are essentially the same thing: a sale of a life insurance policy to a third party for a lump sum of cash, today. The major difference is the term viatical is typically associated with a sale of a policy where the insured has a chronic or terminal illness. Remember, some states do not distinguish the difference in terminology between the transactions. There could also be a difference in the tax consequences between a viatical and life settlement.
The proceeds of a life settlement are usually taxable. Ask a professional tax advisor to be absolutely sure. The proceeds of a life settlement could also be subject to creditors’ claims. If the seller is within two years of death, other laws making the proceeds tax-free may apply.
No. If you feel you can represent yourself in the transaction you can potentially save yourself thousands of dollars in fees. Typical brokerage quoted in the market today can be 6-8 percent of the policy’s face value or 30 percent of the gross proceeds of the sale. Much like selling any asset for value, make sure you understand the transaction before making a decision.
There is no cost to apply. If you choose to be represented by a broker in a life settlement, they will charge a fee for their services. The amount and method of calculating the fee should be provided to the policy seller in the disclosures from their broker.
Most life settlement transaction take one to five months, on average, to complete.
The life insurance settlement industry takes privacy issues very seriously. In most cases, the identity of the insured person or their financial or medical information may not be disclosed unless it is:
– necessary to effect a life settlement contract between the seller and a life settlement provider and the seller and the insured have provided prior written consent to the disclosure
– provided in response to an investigation or examination by the commissioner or another governmental office or agency
– a term or condition to the transfer of a policy by one life settlement provider to another life settlement provider
– necessary to permit a financing entity, related provider trust, or special purpose entity to finance the purchase of policies by a settlement provider and the seller and insured have prior written consent to the disclosure
– necessary to allow the life settlement provider or its authorized representative to make contacts for the purpose of determining health status
– required to purchase stop loss coverage
Contact us. We will provide you with an application and the required releases in order for us to gather the necessary information to evaluate your life insurance policy.
There are no restrictions on the use of the proceeds of a life settlement. Remember, the proceeds may be subject to tax or claim by creditors. But in general, it is your money — use it as you best see fit.
After you sell your life insurance policy, the policy is typically placed with an asset servicer whose responsibilities are to keep the policy in force and update the buyer on any health status changes to the insured. You or someone you designate might have periodic contact with the asset servicing company in order to verify your address, contact information, and current list of physicians. Each state that regulates life settlements set the guidelines for how, when, and how often the insured or designee can be contacted.
Life expectancy firms calculate how long you are going to live based on age, gender, tobacco use, medical condition, medical history, and lifestyle of an individual compared against a group of individuals sharing similar characteristics. This is sometimes known as a mortality table. The average life expectancy is then calculated for an individual using this mortality table. Third party life expectancy firms make their calculations after reviewing the insured’s most current medical information.
No problem, whatsoever. Remember that you don’t have to accept any offer to purchase your life insurance policy. If you do accept an offer and later reconsider, remember that some states have laws that allow you to change your mind within a certain amount of time with no questions asked.
No. The transaction doesn’t become binding until the end of any state-mandated rescission period. This period, which is defined by your state’s insurance commissioner, is a period after you have either signed the settlement contract or received the proceeds from the sale. During this time period, you can return the proceeds to us and receive your policy back — no questions asked.
Most policies sold in the secondary market for life insurance are Permanent life insurance policies, such as: (1) Universal Life (UL); (2) Joint Survivorship Universal Life (SUL); (3) Term Policies Still Convertible to Universal Life without any additional underwriting requirements by the life insurance carriers.
For the vast majority of states, transactions involving the secondary market for life insurance are regulated by each state’s department of insurance. Also, most states require all forms used in the transaction to be reviewed and approved to assure clarity and fairness to protect the owner of the policy.
The secondary market for life insurance is an emerging market that is providing new financial opportunities for seniors. Also, life insurance companies generally do not explain other options to their customers beyond paying premiums, lapsing, or surrendering their policies.
We sure do! Here are some links that might be helpful for you.
Life Settlement Definitions