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All About Life Settlements

Seniors are increasingly aware of the advantages of tapping the market value of their life insurance policy through life settlements. As insurance premiums increase over time, coupled with increasing medical and retirement costs, life settlements can provide a qualified senior remarkable value.

A life settlement frees up the burdensome, ever-increasing, premiums payments and provides a significant source of funding that can be used however you need most.

What is a life settlement?

A life settlement is the sale of an in-force life insurance policy to a third party, where the offer is greater than the cash surrender value of the policy but less than the net death benefit. The offer can be structured as a lump sum cash payout to the policy owner, as a Senior Care Benefit Plan professionally administered to assist with long-term care costs, or as a partial policy sale, where you retain a portion of the death benefit without having to pay future premiums.

A life insurance policy’s market value depends on numerous factors, including the health status of the insured(s), the type of life insurance policy, when the policy was issued, the futures premiums on the policy, as well as how that policy is structured.

A life settlement is a powerful financial planning tool that all seniors should understand. A life insurance policy is personal property that can be sold, just like any other property owned (house, car, stocks and bonds, etc.). A life settlement transaction is the sale of a life insurance policy to another party that does not have a familial or business relationship with you, also known as a “transfer for value.”  

When you sell your life insurance policy in a life settlement or viatical settlement transaction, you will receive a cash payment greater than the cash surrender value of your life insurance policy. Companies that facilitate life settlements, like Q Capital Strategies, can help you with the entire process and determine whether your life insurance policy qualifies for a life settlement or viatical settlement.

The first step to exploring a life settlement is to get an estimate of your life insurance policy’s value. Q Capital offers a life settlements calculator (click here) to assist you with obtaining an estimate. If you qualify after you submit your information, there are a few options:

1.      You can contact a life settlement provider or a viatical settlement provider—just make sure that the company is properly licensed in your state of residence. Life settlements providers (or viatical settlement providers) are licensed by the appropriate state regulatory agency, usually either the Insurance Department or Financial Service Department, to purchase life insurance policies from consumers. Q Capital Strategies is a licensed, full-service life settlement provider, and our team of experts has more than 17 years of experience working directly with policy owners just like you, helping them get the best offer possible on life settlements. You can use this Contact Form to speak with one of our experts who can discuss your policy with you and answer any questions you may have about the life settlement process.

2.      You can contact a life settlement broker—also confirm that the broker is properly licensed in your state of residence. A life settlement broker is licensed by the appropriate state agency to represent consumers when they sell a life insurance policy. The life settlement broker will send your case to life settlement providers on your behalf to see if they are interested in purchasing your policy. When working with a life settlement broker, they will charge you a commission for assisting you in the sales process.  The fee is paid out of the sales proceeds, and no commission is paid if a life settlement is not completed.

What is a Senior Care life settlement?

We offer a Senior Care Life Settlement option which helps seniors pay for monthly long-term care costs, including home care provided by a family member, independent living, assisted living, memory care, and skilled nursing care. Through the Senior Care Life Settlement option, a benefit plan is set up that provides a monthly payment that is adjustable and follows the senior’s needs every step of the way through their care plan. Contact us now to learn more.

How do life settlements work?

After the sale of a life insurance policy, the buyer of the policy takes over all future premium payments and becomes the new owner and beneficiary of the policy. The policy buyers are typically large institutional investors, who purchase the life insurance policies through a licensed life settlement provider. Once the life insurance policy is sold, the new owner takes on the responsibility of paying the insurance premiums until it is time to collect the death benefit.  These institutional investors have large funds that purchase many policies to diversify their investment.

Life insurance is regulated at the state level in the United States – there is no federal regulation of life insurance.  Life settlement transactions are regulated by those same state level agencies, so make sure to check to see that the life settlement provider or life settlement broker you work with has the proper license for your state. The regulations in place provide the policy seller with important protections including the right to unwind the life settlement for a set amount of time after the closing, known as the rescission period (the specific time period varies by state), as well as disclosures about the transaction and privacy and data protections.

During a life settlements closing, an independent escrow agent (typically, a financial institution) holds your offer money until the insurance company has processed your transfer paperwork (change of ownership and beneficiary documents). Once the independent escrow agent determines that the ownership and beneficiary designations have been processed by the insurance company, as required by the closing contracts, the full offer amount will be paid according to your instructions in the closing documentation.

Once the funds have been disbursed to the policy owner (now the former owner), the seller will no longer have to make any more life insurance premium payments, as the new owner will now be responsible for paying the premiums. Once the transaction has been completed, the buyer owns your policy and will check in with you occasionally to make sure their records are up to date regarding contact information and health status.

Why choose a life settlement?

Recent studies show that there are several misconceptions that people have regarding their retirement years. Too many people underestimate the amount of money required to maintain their pre-retirement lifestyle after they retire. The markets have been very erratic, and interest rates are at all-time lows. In the current environment, the idea of retiring at age 55 or 60 just is not an option for most people, and the reality is that many will be working full or part-time jobs into their 70s and beyond.

If you are close to retirement or are already in retirement, it is time to take a serious look at selling your life insurance policy (which can often be sold for much more than the cash surrender value) to help cover your living expenses and maintain your lifestyle.

At this stage in your life, your insurance may not be needed for the same reasons as when you first purchased it. As your lifestyle has changed over time, the mortgage paid off and kids grown, that amount of coverage you have may now be “over-insuring” you. Or, maybe, the premiums are increasing more than expected and/or taking up too much of your budget.

Selling your policy on the secondary market for the fair market value, or maybe selling only a portion of the policy while retaining a portion of the death benefit may be a smart move. A life settlement is a powerful option that more and more seniors are taking advantage of to improve their quality of living in their golden years.

A life settlement is as an option if you are a qualified senior (see our life settlement calculator) with insurance that is no longer wanted, needed, or affordable. Too many policy owners are lapsing or surrendering their life insurance policies for minimal cash values. With a life settlement, a policy owner can get much more for their existing policy by having their policy’s sold for market value – often multiple times more than the cash surrender value – in the life settlement secondary market.

As a policyholder, there are many reasons to consider selling your insurance in a life settlement. While the main motivation of selling a policy in the life settlements market is to receive a cash payout greater than the cash surrender value of the policy, there can be many other motives, including, but not limited to:

  • The life policy is not wanted any longer or there is no longer need for it (e.g., a spouse passes away, a divorce, the children are grown and financially independent, etc.)
  • A change in estate, tax or financial planning or a change in laws, etc.
  • Life settlements can make sense when premium payments increase to the point that they are no longer affordable as a policy owner has aged
  • An investment in the insurance policy is no longer appropriate
  • A favorable exit from an unneeded “key-man” insurance or other business-owned insurance
  • Life settlements can help to fund the purchase of a new financial product or estate planning tool like an annuity, a new life insurance policy or other investment
  • To donate to charity
  • Pursuant to a trust evaluation
  • After a decline in health has caused an increase in medical expenses
  • So that family is not left burdened with debt
  • The policy’s performance does not meet expectations
  • When estate-planning goals of the insured have changed
  • To complete a 1035 exchange for a new policy
  • Life settlements can help to pay off loans

What are the tax considerations?

While we cannot give tax advice, life settlements can be tax-free in some cases. It is advisable to speak with your accountant, attorney, or tax advisor regarding the tax implications of selling your insurance though a life settlement transaction. Additional information about life settlement taxation can be found in this blog article. We offer a Senior Care Benefit Plan (click link for additional information) that is designed to help pay for long-term care needs while protecting future Medicaid and/or Veterans benefits eligibility.  In most cases, the Senior Care Benefit Plan (insert link) is a tax-advantaged use of life settlement proceeds!

How can I find out about life settlement companies, especially those that are properly licensed?

One of the best resource for learning more about the life settlement, the life settlement industry, and which life settlement providers and life settlement brokers are licensed is the Life Insurance Settlement Association (LISA), the trade association for the life settlement industry. LISA’s website has great resources to learn more about the industry that serves this unique secondary market for life insurance. Our President and CEO currently serves as Chair of the Board of Directors of LISA — the full LISA Board listing can be found here. Additionally, here is a link to additional educational resources from LISA.

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