Growing in popularity every day, some life insurance owners are taking advantage of selling unwanted or un-needed life insurance policies to 3rd party, institutional investors. Before making a final decision, there are many things to consider.
What is a life insurance settlement? When a person with an un-needed or unwanted life insurance policy sells it to a third party investor, that is known as a life settlement. In exchange for selling the policy, the owner receives a lump-sum of cash. Or, some people choose different options allowing them to “partner” with the investor to keep a portion of the policy’s proceeds, without ever paying any further premiums.
Who should sell the policy for you? An experienced life insurance professional with experience in the life settlement market will bring you the highest offer. By putting buyers in a competitive situation, their offers will increase. The U.S. market is robust and you want an agent with knowledge and access to all the current buyers. Should you sell your policy? It pays to work with a professional working solely in your best interest. Before making a decision, I advise my clients to speak with their spouse, other advisors and often, their heirs. This information about a life settlement transaction may help.
What is the ideal age to sell a life insurance policy? Typically, buyers of life insurance policies want people who are at least 70 but there are exceptions. Some people under 70 have significant health history and they may qualify. The buyers of policies are more interested in people with shorter life expectancies and a significant health history. Of course, those people with significant health history often want to keep their policies.
Can term life insurance policies be sold for a lump-sum payment?
Yes, but not all term life insurance policies are eligible. It depends on the specifics of each policy, including its conversion deadline, which can be determined in a brief phone call. Most buyers are not interested in policies with less than $100,000 of face value.
Does my term insurance policy qualify to be sold?
Most life settlement buyers want term policies that can be converted to permanent insurance. Therefore, they require term policies that can still be converted to permanent coverage without new medical evidence.
When does the conversion privilege on my term policy expire?
The conversion deadline varies in each policy, even policies issued by the same company will have different conversion deadlines. Some limit the conversion period to a number of years while others may impose a maximum conversion age, often around age 65.
When should I begin to convert the policy if a conversion is necessary?
Selling a policy involves getting medical records, in-force illustrations, a life expectancy analysis, an offer and closing documents. Because the entire process can take 3 to 4 months, it’s best to get started no later than 4 to 6 months prior to the expiration of the conversion privilege. Each time you review your existing life insurance portfolio, it is wise to consider options.
What are the alternatives to selling an unwanted policy? If your life insurance policy has market value to an investor, it may also have value to your heirs. Depending on the circumstances, there are methods to help heirs retain some portion of a policy. This allows heirs to share in a smaller portion of the proceeds at death, without paying further premiums. These alternatives are often overlooked, especially in rushed situations.
Can I split my policy and sell part of it?
It depends on the policy and the company that issued it. Some insurance companies do not permit a policy to be split.
What happens to the cash value in my policy if I sell it? When there is cash value in a policy going to the settlement market, it is a good idea to discuss the many options to maximize its value before the sale occurs. If there is an outstanding loan, that should be addressed.
How is this different than a viatical settlement? Viatical settlements are exclusively for people who are terminally ill.
What are the income tax ramifications ? There are factors to consider and each situation is unique. Of course, income taxes will not exceed the lump-sum you receive, if taxes are due.
To help you with the possible sale of your policy, we offer a complimentary consultation by phone. Please email or fill out the contact form on this page and we will contact you shortly. You can call us directly at 561-869-4500.
Also published on Medium.