Questioning If Your Life Insurance Policy Still Meets Your Needs?
Sell Your Policy for Serious Cash
If your life insurance no longer aligns with your needs, you may have more choices than just letting the policy lapse. One of those options is a life insurance settlement, which lets you sell your policy, often for more than the cash surrender value, unlocking funds for what matters most to you.
At Exemplar Wealth Advisors, we serve individuals across Oregon and the United States, to help people understand the options that are available to them and guiding them through the process.
“I was paying premiums on a policy originally intended for estate taxes, but I no longer have the tax liability.” — Mike J, age 82
Don’t Need, Don’t Want?
Your Life Insurance Policy Could Pay Off Now
According to a 2016 study, most life insurance policies never pay a death benefit. Instead, they expire, lapse, or are surrendered*. This means that most people who have purchased life insurance never get the full use of their policy despite paying many years of premiums.
At Exemplar Wealth Advisors, we believe that life insurance can be a great tool, but we also recognize that there may be a time when that tool is no longer serving its original purpose. You might find yourself in some of these common scenarios:
- You were just notified that the insurance company is going to more than triple your premium and you can’t afford to keep paying it?
- You originally took your insurance policy for your spouse or children, but now your family no longer needs this protection due to accumulated wealth or changes in your family?
- You and your business partner sold your company, and the business insurance policies you had in place are no longer needed?
- You purchased policies to cover expected estate taxes upon the second spouse’s passing, and now federal exemptions have increased so much it’s no longer relevant to you and your family?
Most people believe they have only three options when determining what to do with these unwanted and unneeded life insurance policies.
- Keep the policy and continue paying the increased premiums.
- Decrease the death benefit of the policy to maintain an affordable premium.
- Let the policy lapse and receive any potential cash value that has accumulated if it’s a permanent policy.
What most people don’t know, is that there is a powerful fourth option: a life settlement.
Just like your home, automobile, boat, investment portfolio, real estate, and business interests are all considered capital assets – your life insurance policy is also a capital asset — an asset that may have significant value.
So, What Is a Life Settlement?
A life settlement is the sale of an existing life insurance policy, often to a third-party
institutional investor. These investors on what we call the secondary market often include
pension funds, hedge funds, or banks. The policy is put up for sale for more than its cash
surrender value and less than its death benefit.In such a transaction, the policy owner sells the policy in exchange for a lump sum cash payment.
To learn more about the details on how Life Settlements can work for you, check out our new book on this subject: In The Know — Turning Your Unneeded Life Insurance Policy Into Serious Cash.
For a complimentary copy of our new book on Life Settlements please click here.
Considering a Life Settlement?
Let’s Start With a Conversation
Selling your life insurance policy is a big decision, but it doesn’t have to be a confusing one. We help people evaluate whether a life insurance settlement makes sense for their goals.
Frequently Asked Questions
How long does the process take?
Most life settlement cases wrap up in about 4 to 6 months. Some may take a little longer — up to 9 months — while others move faster. Timing depends on the complexity of your policy and how quickly we’re able to gather documentation together.
Am I required to sell my policy if I go through the process?
Not at all. Going through the evaluation doesn’t lock you in. Once you receive the final offer, it’s entirely your choice whether to move forward or walk away.
What health information is obtained, and how is it used?
With your permission, we request your medical records directly from your providers using a HIPAA authorization. There’s no exam required. This information helps generate a third-party life expectancy report, which is part of determining your policy’s fair market value.
Are there any fees involved with a life settlement?
How do you get paid?
The maximum total compensation is whichever is least of these three:
- 6% of the death benefit
- 30% of the gross offer
- One-third of the value created (which is the gross offer minus the cash surrender value)
Will there be any tax if I sell my policy?
Possibly. If the settlement amount is more than what you’ve paid into the policy, the difference may be taxed — usually as capital gains, but sometimes as ordinary income. We recommend speaking with a tax professional to understand what applies in your situation.
Disclosure
In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller’s death. A policy owner should consider the continued need for coverage, and, if the policy owner plans to replace the existing policy with another policy, the policy owner should consider the availability, adequacy and cost of comparable coverage. Policy owners considering the need for cash should consider other less costly alternatives to a life settlement. When an individual decides to sell their policy, they must provide complete access to their medical history, and other personal information, that may affect their life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information at a later date. A life settlement may affect the insured’s ability to obtain insurance in the future and the seller’s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received from a life settlement with their tax advisor. Valmark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. A life settlement transaction may require an extended period of time to complete. Due to complexity of the transaction, fees and costs incurred with the life settlement transaction may be substantially higher than other securities. Once the policy is transferred, the policy owner has no control over subsequent transfers. If you are an investor or a buyer of a life insurance policy, then you should be aware that investment in a life settlement is highly speculative. Although a substantial profit may be realized, a substantial loss is also possible. The death benefit may never be paid.
