Life Settlements
What is a Life Settlement?
A life settlement is defined as a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party (the funder) for more than the cash value offered by the life insurance company. The purchaser becomes the new owner and beneficiary of the policy and is responsible for all subsequent premium payments. Or simply stated, a life settlement is the sale of a life insurance policy for a lump sum that is greater than the policy’s cash surrender value, but less than its death benefit.
Until recently, a policy owner had few options when it came to life insurance that they no longer needed, wanted or were able to afford. They could either surrender the policy back to the insurance company for the cash surrender value or simply allow the policy to lapse and lose what they had paid into the policy over the years. A life settlement offers a new option — a lump sum payment potentially in excess of the cash surrender value.
Life settlements have enabled policy owners to tap into their life insurance policy's potential liquid asset value. Life settlements are quickly growing into an invaluable financial planning tool for financial advisors, particularly in situations where their client’s needs or circumstances have changed. Anyone considering a life settlement transaction is strongly encouraged to discuss all of the relevant
Who is a Good Candidate?
The general guidelines as to who constitutes a good life settlement candidate are:
--The insured must be at least 65 years old, although an insured 70 years of age or older is more attractive.
--A life insurance policy with a minimum face value of $100,000, although a policy of $1,000,000 or greater face value will generate more funder interest.
Universal, variable, whole life along with convertible term and survivorship life insurance policies are attractive to funders with universal life being the most ideal type of life policy.
--An insured with a life expectancy of greater than 2 years but less than 15 years.
When you are looking to receive a Life Settlement, you will need to complete these steps:
Step 1: No Cost Policy Evaluation
You will need to fill out some brief forms for the policy owner to complete. All information is kept confidential. The Life Settlement company provides an internal policy evaluation for the policy owner. This evaluation is a preliminary review that indicates the policy's marketability. The evaluation will help a financial advisor when consulting with a client in determining whether or not a life settlement is the proper course of action to take.
Step 2: Authorization
After deciding to move forward with the life settlement process, and with the policy owner’s and insured’s permission, The Life Settlement company will compile the necessary documentation such as medical records and verification of coverage.
Step 3: Submit to Funders for Bidding
The Life Settlement company submits the policy and corresponding documentation to several institutional funders in order to receive the best offer on a policy.
Step 4: Offers are communicated to the Producer and their Client
Once The Life Settlement company provides you and your client with an offer, your client can decide whether to decline or accept the offer and proceed with the settlement closing process.
Step 5: Closing/Settlement
If the life settlement offer is accepted, The Life Settlement company facilitates the process of settling the policy. Closing documents are executed and funds are placed in escrow. When the policy ownership transfer has been confirmed, the settlement funds are released within 72 hours. Start to finish, the process takes approximately 60 to 90 days.
After the closing, the institutional funder is now the new owner and beneficiary of the policy and will be responsible for the payment of all future premiums. Upon completion, the seller has no further costs or obligations related to the insurance policy.
