Life Settlements FAQs
Life settlements can be confusing. Find answers to the questions people commonly ask about life settlements below.
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Life Settlement Terms
How Life Settlements Work
In order to qualify to receive a life settlement, senior policyholders must:
• Be over the age of 65, with life expectancy over five years
• Have an active policy with a death benefit of at least $100,000
• Have had the policy active for at least two years
Should you choose to sell your life insurance policy, understand there may be a few drawbacks:
• If you are in significant debt, your life settlement could be seized by creditors.
• You may have to pay taxes on your settlement disbursement.
• If you are on a fixed income or receive financial assistance — Medicaid, social security income, public medical services, etc. — your benefits could be affected.
• Your family members could lose their life insurance coverage if they were included in your contract.
• You could lose rights and benefits from your initial policy.
Taxes & Fees
Selling Your Life Insurance Policy
• If you are in significant debt, your life settlement could be seized by creditors.
• You may have to pay taxes on your settlement disbursement.
• If you are on a fixed income or receive financial assistance — Medicaid, social security income, public medical services, etc. — your benefits could be affected.
• Your family members could lose their life insurance coverage if they were included in your contract.
• You could lose rights and benefits from your initial policy.
After You Sell Your Policy
Most times, the identity, financial and medical information is kept confidential unless:
• There is written consent.
• It is needed for investigation or governmental examination.
• It is a condition of the buyer for successful transfer of ownership.
• A life settlement provider or appropriate representative needs it for confirmation of your health status.
5 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- 360 Degrees of Financial Literacy. (n.d.). Term vs. Cash Value Life Insurance. Retrieved from https://www.360financialliteracy.org/Topics/Spending-Saving/Insurance/Life-Insurance-Understand-Your-Choices
- Bayston, D. (2016, February 4). Do You Qualify for a Life Settlement? Retrieved from https://www.lisa.org/life-policy-owners/do-i-qualify/
- Frequently Asked Questions | LISA. (n.d.). Retrieved from https://www.lisa.org/life-policy-owners/faq/
- Holbrook, A., & Glover, L. (2017, January 6). Life Settlements: Selling Your Life Insurance Policy. Retrieved from https://www.nerdwallet.com/blog/insurance/considerations-when-selling-life-insurance-policy/
- Marquand, B. (2017, February 27). Cash Value Life Insurance: Is It Right for You? - NerdWallet. Retrieved from https://www.nerdwallet.com/blog/insurance/should-you-consider-cash-value-life-insurance/