Life settlements can be confusing. Find answers to the questions most people commonly ask about life settlements below.
A life settlement is the sale or exchange of a life insurance policy for a lump sum of cash greater than the cash surrender value but less than the death benefit value.
The cash surrender value — also known as the cash value — is the cash amount offered to the policyholder in exchange for part or all of their insurance policy’s value. In cash value life insurance policies, policyholders are provided with a death benefit and a savings component that accumulates with every premium payment. If the owner chooses to terminate their life insurance contract before the end of the term period, they are able to receive the accumulated savings, or cash value, rather than the death benefit. An owner can also borrow from their cash value in the form of a loan, but then has to pay back the money with interest to maintain the full death benefit.
The death benefit is the amount on a life insurance policy provided to the beneficiary upon the death of the policyholder.
Life settlements are financial solutions meant for seniors over the age of 65. In order to qualify to receive a life settlement, senior policyholders must:
Once the policy is sold, the buyer, or new policy owner, will be responsible for future premium payments.
Once the policy is sold, all rights and ownership are transferred to the new owner or investor. They are then responsible for all future premium payments until the policy matures. At that point, the new owner will be able to receive the death benefit of the insurance contract.
Yes, you may have to pay taxes on your disbursement. However, there are some settlement transactions considered to be tax exempt. Be sure to discuss the details with a financial advisor or other professional.
This differs from one state to the next. Some states provide 15 to 30 days after receiving the settlement disbursement to change your mind. Be sure to discuss your options with all potential buyers.
Insurance providers will purchase your policy directly from you or through a financial broker.
Life settlements are not subject to one type of life insurance. While there are some more lucrative than others, all types of insurance policies qualify. Be sure to consult with an insurance provider prior to pursuing a life settlement to discuss your options.
Life settlements can be complex transactions that include legal parameters. In order to maximize what you receive for the value of your policy, it is highly recommended you seek professional financial assistance from an advisor or broker. They can help you navigate the sale process, help you with paperwork and ensure the best sale price for your contract.
Viatical settlements are financial solutions meant for terminally-ill candidates of any age with a life expectancy of less than five years. These policyholders would sell their life insurance policy in exchange for immediate cash, which is typically used to pay for medical expenses and last wishes.
Life settlements are meant for seniors, age 65 or older, who have a life expectancy of more than five years. The money disbursed from the settlement can be used for whatever the recipient chooses.
There are no application, appraisal or processing charges to apply for a life settlement. If you hire a broker or financial advisor, they could charge a commission for their services.
Your privacy is ensured when making this sale transaction. Most times, the identity, financial and medical information is kept confidential unless:
On average, a life settlement transaction takes a few months to fully complete due to the involvement of outside entities. Consult with your financial advisor on specific details concerning your life settlement application.
Professional life expectancy firms calculate your lifespan based on your age, gender, medical history and medical condition as well as other factors against a similar group of individuals. The firm then provides you with an average life expectancy, and it is formulated based on your specific situation.
Life settlement recipients have full freedom and flexibility to use their money however they choose.
No. You do have the option of selling a portion of your policy rather than the entire value. You can sell a portion of your policy, pay off your premium payments and still maintain a portion of your death benefit. Discuss your options with your financial advisor and insurance provider.
All policies are not created equal. Payouts differ depending on the value of your policy and the sale offer.
Should you choose to sell your life insurance policy, understand there may be a few drawbacks:
Your attorney and accountant may be useful when determining if a life settlement is right for you. You may also contact the Annuity.org helpline to ask questions or get a referral to possible buyers, such as our trusted partner.