Frequently Asked Questions
What is a Life Settlement?
A Life Settlement is simply the sale of an existing life insurance policy by a willing seller to a willing buyer for a lump sum amount that exceeds the policy’s cash surrender value.
Is a life settlement legal?
Yes. The U.S. Supreme Court ruling in the 1911 case of Grigsby v. Russell stated that a life insurance policy is considered to be personal property and assignable. Like any other property, it can be sold, traded or given away.
Why haven’t I heard about Life Settlements before?
With people living longer and wanting more in their retirement, life settlements have gained popularity in recent years. They have become a viable alternative to realize immediate cash.
Are Life Settlements commonplace?
Yes. Life Settlements have experienced phenomenal growth since 1999, to a point where billions of dollars of face value are purchased each year.
Why would someone sell their life insurance policy?
Most Life Settlement candidates have determined that they no longer want or need their life insurance policy, and they can convert it to cash funds to enjoy while they are living, in essence, converting a death benefit to a living benefit.
Why not just surrender a policy for the surrender amount?
This can be a costly decision. Generally speaking, the surrender amount on a policy is a fraction of what it can be sold for in a life settlement. Often the cash in the policy has been significantly diminished.
Is the insured subject to a medical examination as part of the process?
No. However, the medical records of the insured are provided to a company that specializes in performing life expectancy reviews. They will utilize both medical and actuarial data from a variety of sources in determining the median life expectancy for the insured in question.
What types of policies are typically sold in a Life Settlement?
Universal Life, Term, and Convertible Term Life policies issued by U.S.-based insurance companies insuring individuals over the age of 65.
What size of policies are typically sold?
Generally, policies with a minimum face value of $100,000 or higher may be eligible to convert into a life settlement.
How are the parties to the transaction protected?
The purchaser will deposit funds into an independent corporate escrow account and no funds will be released to the seller until such time as all contractual paperwork has been completed and the insurance company has provided recorded copies of the change forms showing the Purchaser or the 3rd party as the new owner and beneficiary of the policy. The escrow agent must, in most cases, release the funds to the seller within 72 hours of receipt of the recorded change forms.
Are death benefits proceeds taxable?
The purchaser may have tax obligations. It is the responsibility of the Purchaser to consult with his tax advisor to determine what, if any, taxes apply.