5 Reasons why a Life Settlement is important for policy owners

One of the fastest growing areas in financial planning and insurance is life settlements for unneeded life insurance policies to help cover the costs of retirement and long-term care. Life settlements are one of the best options available today to help senior aged clients that own an unneeded or unwanted life insurance policy struggling with the financial realities of aging or impaired health.

  1. Surrender Value vs Settlement Value – Life Settlement industry averages over the years shows that Life Settlement market value can be 5x-10x greater than surrender value, and certainly a greater option than to lapse a life insurance policy after years of premium payments. The range for a Life Settlement can be as low as 10% of the face value and can climb as high as 60% or greater of the face value.
  2. Reverse Underwriting – Qualifying for a Life Settlement is the opposite of qualifying to purchase insurance. In this case, the older and sicker the insured life of the policy is, the higher percentage of the death benefit the policy owner will receive in “present-day value”. This is important for seniors who are experiencing declining health and financial complications. A person who would qualify to buy a life or long-term care insurance policy would be too young and/or healthy to qualify for a Life Settlement. The typical age range for a Life Settlement is 75-92, but younger or older applicants can qualify based on the severity of their health-related impairments.
  3. New Value from Old Asset – Life Insurance policies are legally recognized as assets of the policy owner, with the right to sell their policy for its market value. Once a policy is sold, the owner will receive a lump sum that can be used in a variety of ways to meet the unique financial needs of seniors and/or those suffering from health and long-term care needs. The minimum policy size to qualify for a life settlement is $100,000 of face value (and there is no upper limit for policy size).
  4. Tax Advantages – Life Settlements provide specific tax advantages for policy owners. If a policy owner is diagnosed as chronic or terminal, the proceeds from a life settlement are tax-exempt. If a life settlement is done for a policy owner not chronic or terminal, the proceeds received are only taxed at capital gain for any amount received above what they have paid in premiums for the policy, anything less than premiums paid is tax-free. Policy owners rarely need to pay taxes for life settlements. *This information is intended only to be a guideline and not tax advice, which should always be sought from a certified tax advisor.
  5. Fiduciary Responsibility – A life insurance policy is legally recognized as an asset like a home or stocks. The owners of these assets need to be informed of their options to maximize their value, and the same is true of a life insurance policy. Any legal or financial advisor needs to understand this option and educate their clients or risk possible legal ramifications. There are settled lawsuits on the books brought by policy owners against advisors for failing to inform them of this option. Life Settlement Evaluations are a smart option for policy owners who are considering abandoning their policy.

5 Reasons why a Life Settlement is important for policy owners




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