More and more life insurance owners are taking advantage of life settlements by selling unwanted or un-needed life insurance policies to 3rd party investors. There are still too many owners of life insurance who shy away from or do not know about this option. The industry is regulated and very beneficial to policy owners over age 70. There are exceptions to age 70 and experienced life insurance professionals can help people navigate their way through. The bottom line is that policy owners can let policies lapse, surrender the policy for its internal cash value or sell it for its maximum market value. Each case is unique. What is the market value of 2015 BMWs, 4-door sedans? Without an appraisal, it is impossible to know the price for each one. There is no set price. The exact same rules apply to inforce life insurance policies.
What is a life insurance settlement? When an un-needed or unwanted life insurance policy is sold to a third party investor, that is known as a life settlement. In exchange for selling the policy, the owner receives a lump-sum payment. Or, some people choose different options allowing them to “partner” with the investor to keep a portion of the death benefit, without ever paying further premiums.
Who should sell the policy for you? An experienced life insurance professional, especially experience in the life settlement market. By putting buyers in a competitive situation, offers will increase. The U.S. market is robust and you want an agent with knowledge and access to all current buyers. Should you sell your policy? It pays to work with a professional working in your best interest. Before making a decision, I advise my clients to speak with their spouse, other advisors and 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 conversion deadlines, which can be determined in a brief phone call. Most buyers are not interested in policies with less than $1,000,000 of face value.
Can a term insurance policy eligible?
Most life settlement buyers only want term policies that can be converted to permanent insurance.
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 recent 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 convert 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 review conversion 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 portions of a policy, 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 too 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 income tax consideration for some people but each situation is unique. Of course, income taxes will not exceed the lump-sum you receive, if taxes are due.
To help people with the possible sale of your policy, we offer a complimentary consultation by phone. Please call us or fill out the contact form on this page and we will contact you shortly. You can call us directly at 561-771-4647.
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Also published on Medium.