FAQs

A senior life settlement is the sale of an unwanted, underperforming or obsolete life insurance contract by an elderly individual to a third party for an amount less than the face value, but in excess of the cash surrender value.

Life settlements were created out of the need for seniors to attain access to the death benefit while still living. With a life settlement, the insured has a medically determined life expectancy of three to seventeen years.

Typically, seniors with multiple or underperforming life insurance policies are great
candidates for life settlements. General guidelines are seniors age 65 and older who have:

Substantial net worth
Life expectancy of 3 to 15 years
A change in insurability since policy issue
Greater than $250,000 face value policy
Life policy is beyond the 2-year contestability period

Please refer to the Qualifier Form to better assess whether a life settlement is a viable option.

Any of the following types of life insurance qualify as long as the policy has been in force for a minimum of two years:

Term
Universal life
Whole life
Survivorship
Adjustable
Key Man or COLI (Corporate Owned Life Insurance)
Group life insurance (as long as it is convertible)

A life settlement may provide a better alternative than allowing an unneeded policy to lapse or be surrendered for its cash value. Life settlements are considered for a variety of reasons, including:

Personal Purposes:
To use the proceeds to purchase replacement coverage
Life insurance policy is no longer needed or not performing as intended
Financial obligations or unforeseen financial needs
Gifts to family members or contributions to charity
Unaffordable premium payments
Bankruptcy liquidation or Divorce

Estate Planning Purposes:
Estate taxes no longer an obligation
Liquefy inactive asset
Gift or other tax related expenses
Estate law changes

Business Purposes:
Buy/sell funding is no longer an obligation
Payout or change in deferred compensation
Elimination of the need for the Key Man
Change in financial needs

The provider that purchases the policy will assume the ongoing premium payments.

No, clients are not required to accept the offer from the provider.

No, any offers will be based on the medical records obtained from the insured's physician(s). All information is obtained in a HIPAA compliant process and kept completely confidential.

Yes, the policy will qualify even if it is owned by any of the following:

An individual
A trust
A corporation
A charitable organization

The amount to be paid to the owner of the policy depends upon a number of factors, including:

Face value of the policy
Life expectancy of the insured
Amount of premiums that will have to be paid to keep the policy in force
Cash surrender value of the policy
Loans against the policy
Type of policy
Rating of the insurance carrier

If the insured dies at any time up to the 15th day after receiving the cash settlement, the contract will automatically cancel (unless otherwise stated). The provider will pay the original policy owner or beneficiaries any proceeds it receives from the policy (minus any money the provider paid for the purchase of the policy and any life insurance premiums paid to the insurance company to keep the policy in-force).

No. Often the insurance company will allow you to divide the policy into multiple parts. The owner retains one part, and they may sell the other parts as long as the parts have a death benefit of at least $250,000.

The selling policyholder is free to use the settlement as he, she or it chooses. Some owners use proceeds to purchase long-term care insurance or a more appropriate and better performing life insurance policy. Others gift the money to family members and charities or fund investments. Still others use the money to enhance the quality of their lives.

As with any tax related issue, a tax professional should be consulted. However, it is generally understood that any amount paid for a policy in excess of the cash surrender value is treated as a capital gain. The cash surrender value in excess of the basis in the policy is treated as ordinary income.

Regulation of life settlements is generally administered through the respective insurance departments of each state. There are currently over 30 states with some form of viatical or life settlement regulation featuring principles of the NAIC Model Act. The statutory language and regulatory interpretations vary on a state-by-state basis. The Act was introduced in 1993 by the National Association of Insurance Commissioners to regulate the sale of life insurance policies by a protected class of terminally ill individuals and was expanded in 2001 to regulate all persons selling life insurance policies.

In those states where life settlements are not regulated, members of the life settlement industry are working with state legislators to enact such regulation.