Is the sale of life settlements regulated by any institutional or federal agencies?

Yes, life settlements are regulated on a state-by-state basis by the respective state’s Department of Insurance. As of right now, 45 states have requirements and regulations in place that govern how these settlements are handled.


What types of policies qualify for a life settlement?

As long as the policy has been in force for a minimum of two years, any of the following types of insurance qualify:

  • Convertible term
  • Universal life
  • Whole life
  • Survivorship or Joint Life
  • Adjustable
  • Key man or COLI (Corporate Owned Life Insurance)
  • Group life insurance (as long as it is convertible)

What are the tax implications of a life settlement?

In most life settlement scenarios, proceeds are seen and treated as capital gains. The cash surrender value in excess of the basis in the policy is treated as ordinary income. In any scenario, a tax professional should be consulted for tax-related guidance before and after a life settlement is finalized.


Are there any restrictions on how proceeds from a life settlement may be used?

The money paid in a life settlement or viatical settlement becomes the seller’s to do with what he or she chooses. In most cases, a policy seller has a specific need or use for the payout. Some use the proceeds to purchase long-term care insurance or a more appropriate performing life insurance policy. Others gift it to family members and/or charities or fund investments. Of course, some use the money to better their own quality of living for the remainder of their lives.

Can I sell a portion of my policy in a life settlement?

Insurance companies will often allow a policy owner to divide the policy into multiple parts. While this scenario is typically seen with policies of at least $250,000 and higher, a policy owner may sell a part of his or her policy and retain a portion for him- or herself. Life Settlement Advisors can help guide you toward this service if you’re interested in dividing and selling only a portion of your life insurance policy.


Will the insured need to take a medical exam during a life settlement agreement?

While health status and life expectancy are important factors to consider when negotiating a life settlement, the policy seller does not have to take a medical exam. All settlement offers are based upon preexisting medical records obtained from the insured’s physician(s). All information is obtained in a HIPAA compliant process and remains fully confidential.


Who makes the ongoing premium payments after a life settlement is finalized?

In nearly every scenario, the buyer and new owner of the policy will assume the financial requirements of the policy, including the ongoing premium payments required to keep the policy from lapsing.

Why would anyone consider a life settlement?

While a life settlement forfeits the death benefit of the beneficiary for a smaller payout, there are a number of reasons why someone would consider selling a life insurance policy. A life settlement may provide a better alternative than allowing an unneeded policy to lapse or be surrendered for its cash value. Life settlements are considered for a variety of reasons, including:

Personal Purposes:

  • To use the proceeds to purchase replacement coverage
  • Life insurance policy is no longer needed or not performing as intended
  • Financial obligations or unforeseen financial needs
  • Gifts to family members or contributions to charity
  • Unaffordable premium payments
  • Bankruptcy liquidation or Divorce

Estate Planning Purposes:

  • Estate taxes no longer an obligation
  • Liquefy inactive asset
  • Gift or other tax related expenses
  • Estate law changes

Business Purposes:

  • Buy/sell funding is no longer an obligation
  • Payout or change in deferred compensation
  • Elimination of the need for the Key Man
  • Change in financial needs

Why would someone sell their life insurance policy in a life settlement?

There are a number of reasons why someone would opt into a life settlement. Here are some common, and not so common, reasons why someone would sell their life insurance policy:

  • The insurance policy is no longer needed or wanted by the policyholder.
  • The cost of living becomes too high for the seller.
  • Premium payments have become unaffordable.
  • The policyholder is considering surrendering the policy.
  • The policy is about to lapse.
  • There has been a change in estate planning needs.
  • The policyholder has seen a change in financial circumstances.
  • A change in life circumstance, such as divorce or death, has occurred.
  • A medical need or injury has occurred, and the seller cannot afford payments.

How much will the seller be paid for his or her policy?

The amount a policy seller receives in a life settlement depends on a number of factors. It begins with the face value of the policy, which can range from $100,000 to multi-million dollar policies. Other factors to be included in the final payout for the seller include:

  • Life expectancy of the seller
  • Amount of premiums that will have to be paid to keep the policy in force
  • Cash surrender value of the policy
  • Loans against the policy
  • Type of policy
  • Rating of the insurance carrier

What are the criteria used to determine the value of a life policy?

Before a life settlement is finalized, there are certain factors that decide whether or not a policy can be sold as well as the figures of the settlement itself. These factors start with the life insurance policy holder, such as age, life expectancy, and health status. Then, the factors dive into the financial parameters of the policy, including:

    • Future premium costs
    • Market rate return on similar investments
    • Financial status of issuing insurer
    • Structure of policy

What is a senior life settlement?

A senior life settlement is the sale of an unwanted, underperforming, or obsolete life insurance contract by an elderly individual to a third party for an amount less than the face value but in excess of the cash surrender value. Life settlements exist out of the need for seniors to attain access to the life insurance death benefit while still living. With a life settlement, the insured has a medically determined life expectancy of at least three years or longer.

Is a life settlement the same as a viatical settlement?

No, a life settlement requires a life expectancy of at least three years in individuals typically older than 65 years old and does not involve a terminal illness. A viatical settlement involves insured individuals with terminal illnesses and a life expectancy of less than two years. While both involve selling life insurance policies prior to the death benefit being issued, they are typically utilized for different reasons. For example, a viatical settlement might be a good option for someone with a terminal illness and large medical bills. A life settlement may be chosen by a senior who no longer needs the life insurance policy or their standard living costs are unaffordable under their financial situation.

Will the insured be required to accept an offer from a provider?

Life settlements are negotiations between seller and buyer. The transaction must be accepted by both parties and by no means is anyone required to accept an offer that they don’t like. In most scenarios, sellers would have a lawyer and/or a financial advisor present to make sure they are being heard and their wishes accounted for.