Life Settlement is the legal sale of a life insurance policy to a third party for cash.
Why consider Life Settlement? If you have a life insurance policy that you plan to discontinue for any reason, you will always receive more money from settlement than by surrendering your life insurance policy. Simply put, there is more money available to you than you knew existed.
But there is another reason to consider Life Settlement. Perhaps you may not want to be rid of your life insurance entirely, but rather just have more life insurance than you need. A life settlement can be for the entire death benefit, or just a portion of the death benefit of your policy. A Retained Death Benefit (RDB) option that allows a policy owner to retain a portion of their life insurance death benefit, for the beneficiary of their choice, in lieu of selling the entire policy. We work with each client on an individual basis to provide options based on their unique situation.
The three factors that determine Life Settlement eligibility are:
Age: People age 65 and older are eligible to sell their life insurance policies.
Policy Size: The death benefit of your policy must be $100,000 or larger to quality for settlement options.
Policy Type: Universal Life, Whole Life and Convertible Term policies are all eligible for life settlement. Term policies that are outside of their conversion period are no longer eligible.
There are many reasons an individual may choose to sell their life insurance policy.
High Premiums: If you are on a fixed income during retirement or have unforeseen medical expenses, it can make paying high premiums seem impossible. The first thought you may have it so stop paying premiums altogether and allow your policy to lapse. You will always receive more money from settlement than by surrendering a life insurance policy.
Policy No Longer Needed: When beneficiary(s) are no longer dependent on making a claim to continue their lifestyle when an insured individual dies, it can make more sense to sell your policy in order to have useable cash now rather than keep your policy active. This can also include being over insured, meaning you need some of your coverage, but not all.
Extra Income: Selling your life insurance policy can be a way to supplement income while also eliminating the need to pay high premiums.
Term Policy Expiration: Many term policies do not offer a cash value at expiration, and renewal costs can be high. An alternative to allowing your term policy to expire is to convert it into a universal life policy and sell it for cash.
The value of a policy is determined based on a few factors:
• Policy Type
• Policy Face Value
• Health Status
Settlement companies use these factors to compile an offer for each policy on an individual basis. Once all factors are taken into consideration, an offer is written up.
The average payout of a life insurance sale is 4-8 times the cash surrender value of the policy.
Life Settlement is taxed in three ways:
• Money received from a life settlement up to the tax basis (the amount of premiums paid) is free of income tax.
• Money received that is greater than the tax basis, but less than the cash surrender value, is taxed at ordinary income rates.
• Money received that exceeds the cash value of your policy is taxed as capital gain.
The amount of taxable income is calculated by subtracting the total amount you’ve paid in premiums (your tax basis) from the settlement amount.
How Do You Get Started? Analyze your policy based on the information above and contact me if you wish to receive a calculation.
• Full Name
• Policy Type
• Policy Amount
• Policy Maturity (age 100, 105, 115, etc…)
• Health (Above Average, Average, Below Average, Life Threatening)
We can generate a calculation within minutes that will give you the average pricing for others like you that have gone through Life Settlement. If you like the calculation and wish to continue the process, we can get you a firm offer usually within 24 hours.
Contact me today!
This information does not constitute advice in the area of legal, or tax advice. Clients should consult their own legal or tax advisors involving such matters.