Frequently Asked Questions
What is a life settlement?
A life settlement is the sale of a life insurance policy that is no longer wanted or needed to a third party for an amount greater than the cash surrender value.
What are the most common scenarios where someone would consider a life settlement?
- If the policy is about to be surrendered or lapsed
- Premiums are too burdensome
- Policy is underperforming
- Change in estate size
- Need for additional income
- Need to pay for long term care
- Desire to sell a gifted policy
- Retirement or sale of business
How can you use the proceeds from a life settlement?
- Fund new insurance
- Investments
- Supplement income
- Pay off debt
- Pay for medical services
- Anything - the proceeds are unrestricted
Who qualifies for a life settlement?
Anyone over the age 65 with a life insurance policy that has a death benefit of 100,000 or more would qualify for a life settlement. The policy must be in force for at least 2 years prior to the sale of the policy.
What types of policies qualify for a life settlement?
- Whole life
- Universal life
- Variable life
- Second-to-die
- Term
- Group
- Virtually any type of life insurance can be sold.
How much will I receive for my policy?
The three largest driving forces in determining the price of the policy are the clients age, health and premiums. The other factors that determine the offer amount are:
- Type of policy
- Insurance company rating
- Ability to make a competitive market for your policy
How would I obtain a life settlement offer?
The policy owner would be required to give their written authorization for us to pull their medical files. We would then obtain all medical records and then we 'make the market' by shopping the case at multiple credible institutional funders. The offer process takes approximately 6-8 weeks.
For a free appraisal of your policy CLICK HERE
Once I receive a quote am I obligated to sell my policy?
Receiving a quote from multiple funders does not in any way obligate you to sell your policy.
Do I have to sell all of my policy?
No. You can sell all of your policy or a portion of your policy. If you sell only part of your policy you will be required to assign or transfer only the part being sold to the third party purchaser.
Is there a difference between a life settlement broker and a direct funder?
Yes. Although both can help you sell your policy, there are important differences between the two. A broker works for you and will check with several funders to obtain the highest cash offer available. A funders only responsibility is to purchase your policy for as little as possible.
Is my information confidential through the life settlement process?
Yes. Any information that you give to a broker or financial representative about you or any of your family members may not be shared with anyone else without your prior written consent.
What are the tax implications?
While Life Settlement Advisors does not provide tax or legal advice our understanding is the following:
- Tax free up to the owners cost basis
- Ordinary income tax from the cost basis to the cash surrender value (if it exceeds the basis)
- Capital gains tax on any amount above the cash surrender value
For example, let's say you have a $1,000,000 policy that you have paid $100,000 in premiums and the cash surrender value is $125,000. If you sell the policy for $200,000 then the tax would be as follows: The first $100,000 would be tax-free. The portion from $100,001-$125,000 would be taxed at ordinary income and the amount from $125,001-$200,000 would be taxed at the capital gains rate of 15%.
What if I change my mind and decide not to sell my policy?
There is a 15-day rescission period. As the previous owner you can change your mind and get the policy transferred back to you within 15 days from receiving your funds.
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