WHAT IS A LIFE SETTLEMENT?
A life settlement is the sale of an existing life insurance policy on the secondary market to a third party for fair market value.
The owner sells the policy in exchange for a lump sum settlement that can be higher than cash surrender value.*
The third party institutional investor becomes the owner of the policy, makes premium payments, and collects the death benefit at the insured’s death.
With institutional investors, policies are owned in large blind trusts with other policies. This can help to assure client confidentiality.
CHARACTERISTICS OF A POTENTIAL LIFE SETTLEMENT CANDIDATE
Insured’s age is 65 and older
Life expectancy of 15 years or less
Decline in health from original policy issue
Life insurance policies with a net death benefit of $250,000 or more (no maximum)
Policy type Universal Life (UL), Survivorship Universal Life, Variable Universal Life and Convertible Term, (Sometimes Whole Life)
Owner can be an Individual, Trust, or Corporation
A FEW REASONS WHY YOU MAY WANT TO SETTLE YOUR POLICY
Policy No Longer Needed /
Retirement Income or Long Term Care Funding
Increased Cost of Insurance
Change of Business /
Key-Man Policy No Longer Needed
Term policy is nearing the end of a term period. You can convert to a permanent product and receive, through a life settlement, proceeds for an asset that will terminate if not converted.
Policies held within a trust are no longer meeting the original trust plan objectives.
Business is sold or changes are made that result in insurance no longer being needed.
Funds are required to focus on personal needs such as retirement, long-term care insurance, or family emergencies.
*Actual offer will be dependent on your particular age and health status, the condition of your life insurance policy and other requirements of the secondary market at the time of your settlement.
In a life settlement arrangement, the current policy owner transfers the ownership and beneficiary designation to a third party, who will receive the death proceeds upon the death of the insured. As a result, this buyer has a financial interest in the seller’s death. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her 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 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 with their tax advisor. ValMark Securities supervises life settlements as a security transaction. Individuals considering life settlements should carefully read the entire sales agreement, consult their advisors, and consider all available options before selling their policies. ValMark Securities and its registered representatives act as brokers in the life settlement transaction and may receive a fee from the purchaser. A life settlement transaction may require an extended period of time to complete. Due to the complexity of the transaction, fees and costs incurred with the life settlement transaction may be substantially higher than other securities. There is no guarantee that an offer will be received and a sale will be completed. Neither ValMark Securities nor its registered representatives provide tax advice.
- 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.
- 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.
- Additional funds may need to be invested to pay premiums if the insured lives substantially longer than expected.