- Life Settlements FAQ -
Everything You Need To Know About Life Settlements
A life settlement is the sale of a life insurance policy to a third-party for cash. You’d pursue a life settlement when you have a life insurance policy you no longer need or want. It’s a lucrative alternative to surrendering your policy, because the sale price is typically higher than the policy’s current cash value.
At the close of a life settlement, you are paid the proceeds in cash and your policy is transferred to the new owner. At that point, you are no longer responsible for the premiums and the new owner will control the policy’s death benefit.
Harbor Life Settlements is the world leader in getting the insured amazing offers on their policies, so they can use the cash now, when they want and need it the most.
The distinction between a life settlement and a viatical settlement has to do with the life expectancy of the insured. In a life settlement, the insured is an elderly individual, aged 65 or older, with a life expectancy of five years or more. In a viatical settlement, the insured is a terminally ill individual of any age whose life expectancy is less than five years.
You can use the cash proceeds from a life settlement or viatical settlement however you wish. Commonly, viatical settlement proceeds are used to pay for healthcare and final expenses.
A life insurance policy’s cash surrender value is the amount you’ll receive from your insurance company if you terminate your life insurance. Generally, the cash surrender value will be the policy’s accumulated cash value, less any termination fees.
Life settlements average 4 times the surrender value of a life insurance policy, which makes it a much better option for people who want to stop paying premiums and get cash now.
Cash value is a feature of permanent life insurance. Premiums paid on permanent life coverage serve two purposes: They go towards the cost of your insurance and they fund a cash account. That cash account earns tax-deferred interest and grows over time. The policy’s accumulated cash value is the balance in that account on any given day, and it is your financial asset.
When you surrender a policy, you are essentially withdrawing all of the cash and cancelling your death benefit. The insurer must return the cash value to you, but you’ll pay termination fees in the process. Termination fees are tiered so that they’re highest in the first years of the policy and gradually reduce down to zero over time. Check your documentation or ask your insurer for the structure of your policy’s termination fees.
The death benefit of a life insurance policy is the amount your beneficiary receives when you pass away.
The death benefit is often, but not always, the same as the policy’s face value. A policy’s face value never changes, but there are certain actions that do affect your death benefit. Two examples are cash value loans and withdrawals, which both reduce your death benefit.
A life settlement is right for you when all of the following four conditions are true:
Your life insurance policy is suitable for sale, based on your age and the policy’s size and type. Harbor Life Settlements can determine the marketability of your policy, quickly and without obligation.
You no longer want to pay your life insurance premiums. Maybe the premiums are too high, or maybe you don’t want the hassle of paying the bill. The reason doesn’t matter; your obligation to pay those premiums goes away when you close a life settlement.
You and your loved ones are not relying on the future death benefit in any way. Once you sell your policy, you no longer have access to the death benefit. The company that purchases your life insurance will designate a new beneficiary.
You want to generate the highest amount of cash possible for your life insurance. If you’re going to give up the cash value and death benefit anyway, there’s no reason not to maximize your proceeds.
You are a candidate for a life settlement if you are 65 or older (or have severely impaired health) and hold a life insurance policy that’s valued at $50,000 or more. Your state may have additional requirements, such as a minimum policy age. Your policy’s age is the number of months or years that have passed since you initiated the coverage.
The simplest way to determine if you qualify for a life settlement is to reach out to the team at Harbor Life Settlements. We will prequalify your policy for free, with no obligation from you.
Medical underwriters prepare life expectancy estimates. They rely on your health history and medical records, plus statistical data on mortality rates of people who are similar to you in age, gender, and health.
Many types of life insurance qualify for a life settlement. You could sell an individual or group universal life, variable life, whole life, or convertible term life policy, for example. You could also sell a non-convertible term policy, with some exceptions. If the level-term period has expired, for example, term life is marketable only if the insured is terminally ill.
The most attractive policies for life settlement providers are those with a face value of $50,000 or more. You could reach the $50,000 threshold with one single policy or by marketing multiple smaller policies together.
If you surrender your life insurance, the policy is only worth the accumulated cash value after termination fees have been deducted. In a life settlement, a qualified life insurance policy is worth well more than the cash value. On average, life settlement contracts generate sale prices averaging 13.5% to 22.82% of the policy’s face value, according to the Life Settlements Report. Historically, Harbor Life Settlements outperforms the industry, with our sale prices averaging 30% of face value.
Your age, health, policy size, policy type, cash value, and other factors all influence the market value of your policy. On the high side, it could be worth as much as 70% of the policy’s face value.
Several factors affect the value of your policy, including:
Your age
Your gender
Your health and life expectancy
The policy type
The policy size
Your accumulated cash value
The ongoing premiums on the policy
Buyers prefer older policyholders, large death benefits, and cash-value balances that are large enough to fund future premiums. Harbor Life Settlements can review your policy details and provide a no-obligation estimate of your policy’s value or you can use our life settlement calculator to get an idea of its potential value.
Your policy’s estimated value will always be smaller than its face value or death benefit. This is because life settlement providers are purchasing your life insurance as an investment. They pay cash today in return for ownership of your death benefit in the future. If the purchase price today were the same as the future death benefit, that would not be a good investment.
What buyers are willing to pay relative to the policy’s face value is heavily influenced by your life expectancy. Consider this simple example. You have the opportunity to buy a baseball card that will be worth $100 when the person on the card gets inducted to the hall of fame. If you were reasonably certain that will happen in five years, you might pay $50 for that card. But maybe you’d only pay $30 if you expected to wait seven years to sell the card for $100. Either way, you wouldn’t pay the full $100.
You can choose to sell a portion of your life insurance policy. Going that route would accomplish three things: You’d raise cash, reduce your premium payments, and keep a smaller death benefit that you could use later or leave to your loved ones.
Yes, you can sell multiple life insurance policies. If you have several smaller policies that don’t qualify for life settlements individually, you could market them as one package. As long as the cumulative face value of these policies is $50,000 or more, the bundled policies would qualify for a life settlement.
You won’t have any out-of-pocket expenses in a life settlement. If you sell your policy through a broker, the broker does earn a commission — but that commission (up to 30% of the sale price of the policy) is deducted from the sale proceeds.
Life insurance policies are purchased by life settlement providers. These companies buy life insurance policies either for their own investment portfolio or on behalf of institutional investors. Most states regulate life settlement transactions and require life settlement providers to be licensed by the state insurance office.
When you work with Harbor Life Settlements, we will refer your policy to one or more licensed purchasers of policies. By leveraging our network, we’re able to get fast, fair offers for sellers like you.
Yes! You can sell your life insurance directly to a life settlement provider. Harbor Life Settlements help you do this, and manages the entire transaction for you, from contacting your policy carrier to requesting medical records, and even finding the right institutional investor for your specific policy and personal situation. This, combined with no out of pocket costs to you, the seller, and no commission paid on the sale price of your policy, is why this route is so popular with consumers.
You can change your mind during and even after the life settlement process. You are never obligated to accept an offer on your policy. And if you do accept an offer, you can still reconsider during the rescission period — a timeframe defined by your state. Rescission periods vary, but they’re usually two weeks.
A life settlement transaction can take two to four months, from start to finish. That includes gathering medical and policy documents, analyzing the insured’s life expectancy, marketing the policy and managing multiple rounds of bidding (when a broker is involved), and finalizing the transaction after a sale price is accepted.
Your private information is protected throughout the life settlement process. No identifiable information about you is shared without your knowledge.
You will be asked to consent to the release of your medical records during the underwriting phase of your life settlement. This is an essential step in understanding your life expectancy, which influences the market value of your policy. Buyers need a reliable estimate of your life expectancy in order to put their best offer forward.
Once you sign a medical consent form, your health records are shared with the underwriter behind the scenes — you do not have to be involved in any way.
You won’t have any out-of-pocket expenses in a life settlement. If you sell your policy through a broker, the broker does earn a commission of up to 30% of the policy’s sale price — but that commission is deducted from the sale proceeds.
You will not owe premiums on your life insurance after you sell it. The only exception here is if you decided to sell only a portion of your policy. In that case, you’d still owe premiums on the portion of the policy you retained.
Life settlements are taxable, to the extent you earned a profit. In the IRS’ view, your profit on a life settlement is the difference between the sale price and the cumulative premiums you paid on the policy. That profit is taxed in two buckets:
The difference between the policy’s cash surrender value and total premiums paid is taxed as regular income.
Any remaining sale proceeds are taxed as long-term capital gains.
Here’s a simple example to demonstrate. Let’s assume you’ve paid $80,000 in premiums on a life insurance policy and you sell it for $150,000. Your profit is $70,000. If the policy’s cash value is $100,000, $20,000 of your profit is taxed as regular income. The remaining $50,000 is taxed at the capital gains rate. The $20,000 is the difference between the $100,000 in cash surrender value and the $80,000 of premiums paid.
There are no restrictions on how you use the proceeds from your life settlement. You can use these funds however you want: to cover medical expenses, to buy a different type of life insurance, to improve your financial security, or to purchase a home, car or boat.
Harbor Life Settlements is a life settlement company that works directly with policyowners to sell their life insurance quickly and for the highest sales price possible.
Harbor Life Settlements manages the life settlement process for you, from start to finish. We prequalify you and underwrite your policy. We then present your policy to our provider, who finds the best institutional investor for your specific policy and situation, and present you with a fast, fair offer.
We help streamline and manage the life settlement process for you, so you don’t get buried in the details.
Our specialties are providing an exceptional customer experience every single time, transaction speed, and high offers. We can get you a fast, fair cash offer on your policy, and in most cases, can do it faster than other companies. This is in part thanks to our world-class technology capabilities, combined with our internal experts and institutional investor relationships. We put all of these to work for you, to get you a fast, fair offer.
Contact Harbor Life Settlements and we’ll provide you with a no-obligation quote on your life insurance today.
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