Life Settlements: Maximize Your Policy's Value

Frequently Asked Questions

• What are the basics of Medicare that I need to know?

  Medicare is a federal health insurance program primarily for people aged 65 and older. It includes different parts such as Part A (Hospital Insurance), Part B (Medical Insurance), Part C (Medicare Advantage Plans), and Part D (Prescription Drug Coverage). Understanding these options is crucial for making informed decisions about your healthcare coverage.

• How can I reduce my tax exposure during retirement?

  Reducing tax exposure in retirement involves strategies like Roth IRA conversions, tax-efficient withdrawals, and leveraging tax deductions. Consulting with a financial advisor who specializes in retirement tax planning can help tailor these strategies to your specific needs.

• What is the Medicare enrollment process?

  The Medicare enrollment process typically begins three months before you turn 65 and continues for seven months. You can enroll in Medicare Part A and/or Part B through the Social Security Administration. It's important to understand your eligibility and the deadlines to avoid penalties.

• How do life settlements work?

  Life settlements involve selling your life insurance policy to a third party for a lump sum that is more than the surrender value but less than the death benefit. This can be a valuable option for seniors looking to liquidate an unneeded policy and improve their financial situation.

• What are the benefits of annuities for retirees?

  Annuities provide a steady income stream during retirement, offering financial security and peace of mind. They can be tailored to meet your specific needs, whether you prefer fixed payments or variable returns based on market performance.

• How can I ensure a financial legacy for my heirs?

  Ensuring a financial legacy involves estate planning, setting up trusts, and making strategic investments. Life insurance and annuities can also play a role in providing for your heirs while minimizing tax burdens.

• What are the common mistakes to avoid during Medicare enrollment?

  Common mistakes include missing enrollment deadlines, not understanding the differences between Medicare plans, and failing to review your coverage annually. Staying informed and seeking professional guidance can help you avoid these pitfalls.

• How can I protect my wealth in retirement?

  Protecting your wealth involves diversifying your investments, managing risks, and planning for healthcare costs. Working with a financial advisor can help you develop a comprehensive strategy that aligns with your goals.

• What should I consider when choosing a Medicare Advantage Plan?

  When choosing a Medicare Advantage Plan, consider factors such as coverage options, provider networks, out-of-pocket costs, and additional benefits like vision and dental. Compare different plans to find one that best suits your healthcare needs.

• How often should I review my retirement plan?

  It's advisable to review your retirement plan annually or whenever there are significant changes in your life or financial situation. Regular reviews help ensure your plan remains aligned with your goals and adapts to any changes in the market or your circumstances.

• What is a life settlement?

  Life settlement is the term used to describe the process through which the owner of a life insurance policy sells the policy to a third party. Sellers receive cash in exchange for transferring the ownership of their policy to a buyer. The seller receives an amount of money that is greater than the policy’s cash value at the point of sale, but less than the policy’s death benefit. The buyer becomes the new owner and beneficiary of the policy and pays all future premiums until the policy matures, at which time, the new owner receives the death benefit of the policy. Selling a policy is regulated, and available in all states.

• Who is eligible for a life settlement?

  The combination of insured’s health condition and age is an important factor in qualification for a life settlement. Purchasers may have different criteria, however most commonly life settlement purchasers require a minimum insured age of 65 years or older. However, younger insureds may qualify if diagnosed with a serious health condition.

• What types of policies qualify?

  All policy types, including term, whole life, adjustable life and universal life may qualify. Some purchasers will also consider group life and Federal Employee Group Life Insurance (FEGLI). Commonly, policies with death benefits of $100,000 or more may qualify, although some purchasers may consider smaller policies.

• What are the key steps in the life settlement process?

  Whether you choose to work with a broker or sell directly to a provider, there are several steps you will go through to complete the sale of your unwanted or unneeded life insurance policy. The steps in the life settlement process are:

  • Applications/Qualification: The process begins with the owner and insured granting permission to gather information to evaluate the policy. For the owner, this means a request for information from your life insurance company concerning the premiums and benefits provided by your policy. For the insured, giving permission to request medical records for underwriting.  At this time the owner and insured may receive additional information and disclosures.
  • Information Gathering: Once the owner and insured have granted permission, information will be gathered from the insurance company and from the insured’s physicians. Once the medical records are received, they are reviewed by specialty actuaries and underwriters.
  • Appraisal/Valuation:  All of the information about the policy and the insured underwriting are combined and evaluated to determine the current market value of the policy.  Each policy and insured combination are unique, and therefore each policy must be considered individually.
  • Offers to Purchase: Keep in mind that any offer to purchase consists of both the amount of money the buyer is willing to pay and any terms they may propose to complete the transaction. Terms include timing, and other conditions that may need to be confirmed before the sale is completed.
• How long does the life settlement process take?

  There are many different things that impact the processing time of a life settlement.  Life insurance companies can take as much as 4 weeks to respond to request for information.  Medical records collection processing times depends varies widely by physician, but on average it can take 2-4 weeks and sometimes longer.

  Medical underwriting and valuation processing can take about 3-4 weeks.  Once you accept an offer, contracting and due diligence lasts approximately 2-4 weeks.  Life insurance company processing time, to change the owner and beneficiary, is typically 2-4 weeks. Most often, these processes occur in parallel.

  The items most impactful to the timeframe are the processing times at the life insurance company, the copy service times at the different physician’s offices and how quickly the owner and insured respond to requests.  In general, plan on 1 to 2 months in total.

• Who are the parties involved in a life settlement transaction?

  Life Settlements are a regulated transaction in 43 states.  A life insurance policy is purchased by a licensed buyer called a provider.  Sellers may engage the services of a life settlement broker.  In addition, a policy sale includes the services of an escrow company, typically a bank.

• How can I find out how much my policy is worth?

  Many life settlement companies offer quick calculators or estimators.  However, these calculators rely on very limited information and may serve best as an indication of whether a policy could have value. Each policy and insured are completely unique combinations, and the only true way to understand if your policy value is to be properly underwritten and solicit bids. A recommended first step is to speak with a life settlement professional who, in a short conversation, can ask pertinent questions and provide guidance about a policy’s potential market value. Speaking with a life settlement professional will help you understand your options.

• If I no longer need or can afford my policy, what are my options?

  Policy owners have a few options if they cannot continue to afford their policy premiums. The possible exit strategies for an unaffordable, unwanted or unneeded life insurance policy include:

  • Lapse – stop paying premiums and allow the policy coverage to simply expire
  • Surrender – return the policy to the insurance company and receive the cash surrender value
  • Accelerated death benefits / premium waivers – insureds with qualifying terminal or chronic illness may be eligible to receive a portion of the policy death benefit or to have premium requirements waived while living.  Not all policies include this benefit and qualification requirements vary.  Details of this benefit can be found in your policy copy; or
  • For more information about which option that may be available, please contact a life settlement professional.
• Who invests in life settlements?

  Life settlements are considered an alternative fixed income investment and are an attractive asset class for institutional portfolios seeking long-term investments. Fund specializing in alternative investments, pension plan investments, banks, insurance companies and private equity firms are examples of the type of investors in the life settlement market.

  Fractionalization and selling of multiple interests in the ownership of a life insurance policy is not an appropriate investment for most if not all investors because it creates an investment structure with unique and complex risks that are not easily understood by most investors.

• How is an offer calculated and how much can I expect to receive?

  Simplistically, a policy’s valuation is based upon the amount of death benefit, the age and health of the insured and the expected amount and duration of premiums required over time, along with investment considerations.

• Are life settlement proceeds taxed?

  There are potential tax implications related to the sale of a life insurance policy. IRS Revenue Ruling 2009-13-15 explains the possible tax consequences of selling a life insurance policy as a life settlement. Most recently, Internal Revenue Bulletin 2020-05 provided additional guidance on provisions within the 2009-13-15 Ruling. In all cases, the seller of a life insurance policy will receive 1099. Anyone selling a policy should secure the services of a competent tax professional to ascertain the specific ramifications that apply to them when selling an unwanted or unneeded policy.

• Is the life settlement market regulated?

  Yes. Regulations have been passed in 43 states, and registration or licensing is required for both brokers and providers (i.e., buyers). It is important to work with properly licensed firms who are required to follow the regulations governing the transaction including providing state-mandated disclosures and maintaining the privacy and confidentiality of consumer information.

• What are the typical disclosures with which I should expect to be provided during the transaction process?

  Each state’s regulations specify the disclosures a licensed broker and provider must make to a consumer who sells a policy. For correct contact information, please refer to the NAIC state insurance departments page for more information about a particular state’s disclosures.

• Is the life settlement process confidential?

  The life insurance settlement industry takes privacy issues very seriously. In most cases, the identity of the insured person or their financial or medical information may not be disclosed unless it:

  • is necessary to effectuate a life settlement contract between the seller and a life settlement provider  (i.e. buyer) and the seller and the insured have provided prior written consent to the disclosure;
  • is provided in response to an investigation or examination by the commissioner or another governmental office or agency;
  • is a term or condition to the transfer of a policy by one life settlement provider to another life settlement provider;
  • is necessary to permit a financing entity, related provider trust or special purpose entity to finance the purchase of policies by a settlement provider and the seller and insured have prior written consent to the disclosure; or
  • is necessary to allow the life settlement company or its authorized representative to make contacts for the purpose of determining health status.
• Are there any out-of-pocket costs?

  Policy owners and insureds generally do not incur any out-of-pocket costs to pursue a life settlement. Obviously, brokers, providers and other businesses involved in a transaction are compensated for the work they do, but these expenses are factored into the transaction. Consumers do not have to pay out-of-pocket to explore the life settlement option.