• Why sell a life insurance policy?
• What is a senior or life settlement?
• Who qualifies for a senior or life settlement?
• What types of life insurance policies are eligible?
• How does the settlement process work?
• How long does the settlement process take?
• Where does the funding come from to purchase a life insurance policy?
• Are life settlements legal?
• What are the tax implications?
• How can I find out more?

ANSWERS:

1. A life settlement should be considered prior to any decision to lapse or surrender an existing policy. There are many reasons why a client may wish to sell a life insurance policy.  These reasons may include any of the following:
1. The policy has become too expensive and the client seeks to replace it with more cost efficient coverage. 
2. The client’s financial situation has changed and the underlying reason for the coverage is no longer present. 
3. The policy is not performing to the client’s expectation. 
4. The client wishes to raise cash for other needs such as funding long-term care insurance or making a charitable gift.
5. Changes in tax laws have negated the need for certain policies.

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2. A senior or life settlement is a transaction through which the policy owner assigns all right, title and interest in his/her life insurance policy to a third party in exchange for an immediate cash payment that is less than the net death benefit, but exceeds the cash surrender value. 


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3. Generally, anyone 65 years of age or older, who is not suffering from a catastrophic or life threatening condition, is eligible.



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4. Most types of insurance policies are eligible for consideration including term (generally must be converted prior to sale), universal life, whole life, variable life and survivorship policies.



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5. The life settlement process begins with the insured submitting basic personal information on an application and executing releases for his/her medical records and life insurance policy information.  Next, all of the relevant life insurance policy information and the insured’s medical records are gathered.  These documents are then submitted for review and analysis to licensed companies in the business of purchasing life insurance policies.  If an offer to purchase is made and accepted, then the policy owner will enter into a contract for the sale of the policy and funds will be escrowed for the agreed upon purchase price.  Once the issuing insurance carrier has completed the change of ownership and beneficiary to the new purchaser, the purchase price due to the policy owner will be released from escrow. 



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6. The length of time to complete the life settlement process through funding varies depending upon the diligence of the policy owner in gathering the required information and the speed with which the issuing insurance company effects the change of ownership and change of beneficiary.  However, the process is generally completed within 90 days.



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7. Presently, there are a variety of institutional funding sources, both foreign and domestic, that are purchasing portfolios of life insurance policies in the secondary market, including banks and hedge funds.



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8. The sale of a life insurance policy is regulated by a growing number of states through their respective Departments of Insurance.  If you have a question about your state, please contact us.



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9. There are certain tax implications to the policy owner which will depend upon the owner’s basis in the policy and the holding period. Basis, in this context, can usually be defined as the gross amount of premiums paid to date.  Although there is no uniform consensus among tax practitioners, a life or senior settlement will be taxed as follows (from the owner of the policy’s perspective):

• The amount of the proceeds up to the owner’s basis will be tax free.
• The portion of the proceeds exceeding the owner’s basis but not in excess of the cash surrender value will be taxed as ordinary income.
• The portion of the proceeds exceeding the cash surrender value will be taxed as capital gains and, depending upon length of time held, will be treated as a long or short term gain.   

Please consult your tax professional or contact one of our professionals with further questions.


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• Please submit any additional questions or information requests to: (website address).



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