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Life insurance policies are one of the most valuable assets a person can own. They are also one of the most misunderstood and wasted. People don’t realize that a life insurance policy is personal property just like their home and that it has Life Settlement value while they are alive. Seniors in particular too often abandon their policy after making premium payments for years!
The owner of a life insurance policy can sell their policy through a Life Settlement for its highest market value. But the problem is that not enough policy owners are aware of this unique financial option designed specifically to benefit them while they are still alive.
- What is a Life Settlement: It is the legal right of every life insurance policy owner to be able to sell their policy, like any other asset, to a new owner who will take over the premium payments and then collect the death benefit years later.
- Who qualifies for a life settlement: Most often, a Life Settlement is for seniors over the age of 65 with a life insurance policy above $100,000 of face value. The value of a Life Settlement is based on “reverse underwriting’ so the older and sicker a person is, the more they will get from a life Settlement. Someone too young and healthy will not qualify for a Life Settlement.
- How does a life settlement work: The process of a Life Settlement takes about 60-90 days with no costs whatsoever for the policyowner. Last year there was $4.5 billion of life settlements in the United States with thousands of transactions are completed every year. Policy owners tend to receive between 10%-50% of the face value by transferring the ownership of their policy through the insurance company to the new owner. Once a life settlement is complete, the policy owner is no longer responsible for making premium payments.
- What are the types of life settlements: Life Settlements provide a number of different financial options to address the unique financial challenges of aging. Life Settlements can be used to maintain a reduced death benefit policy with no more premium payments, or it can be used to fund an annuity to secure an ongoing income stream for life, or it can be used to fund long-term care on a tax-free basis, or it can be used to obtain a lump-sum cash settlement.
- What are the tax implications for the policy owner: Life Settlements can provide unique tax-advantages. If the policy owner is diagnosed with chronic health conditions (2 ADL’s or more) or is medically certified as terminal, the proceeds from a Life Settlement are tax-free. If the policy owner is not chronic or terminal, then the proceeds from the Life Settlement are tax-free for the amount they receive equal to what they have paid into the policy in premiums. Anything received from a lfe settlement above what has been paid in premiums is taxed as capital gain. So if a person had paid $90,000 in premiums over the years and then received $100,000 from a Life Settlement, they would have $10,000 of capital gain and $90,000 tax-free. *This information is intended only to be a guideline and not tax advice, which should always be sought from a certified tax advisor.
As seniors confront the realities of aging and the impact that retirement and health care will have on their finances; it is creative financial opportunities like Life Settlements that can make the difference between possibly running out of money with years left to live, or living those years with comfort and security.