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Life Settlements 101
Just like any other asset, a life insurance policy can be sold by one party to another for cash. So very simply, a life settlement is a transaction in which a life insurance policy is sold by one party to another.
The purchasing party is an investor willing to pay the policyholder a fee to become the beneficiary of the policy while assuming responsibility for paying future premiums.
As part of the purchase transaction, the investor assumes responsibility for paying all future premiums required to keep the policy enforced. When the insured passes away, the investor receives the death benefit.
So a life settlement can be an unexpected way to liquidate assets, plan for your family’s future, and respond to late life changes. The process can seem confusing at first, but at Windsor Life Settlements, we’re committed to clear explanations of your options so that you and your family can gain the most benefit with the least risk, and take advantage of a life settlement market that’s currently on the rise!
When we refer to a “life settlement,” we’re simply referring to the transaction that can occur between an original life insurance policyholder and a purchasing party.
The purchasing party is an investor willing to pay the policyholder a fee to become the beneficiary of the policy. This fee is typically more than the existing cash surrender value of the policy, but less than the policy’s full death benefit. Following the transaction, the investor assumes responsibility for paying future premiums, and, when the insured passes away, the investor collects the death benefit on the life insurance policy.
When done well, a life settlement transaction benefits both parties involved and ensures that you don’t leave any assets on the table as you prepare to enjoy your golden years.
A Brief History Of Life Settlements
The life settlements industry has roots that stretch back all the way to a Supreme Court case in the early 1900s. The case in question, Grigsby v. Russell, included a written ruling that stated: “So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of a property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner’s hands.” In other words, this case, and many other judicial rulings over the years made clear that a life insurance policy is a property just like any other, and as the owner, you have a right to liquidate that property as you see fit.
Despite the historical precedent for such a transaction, the option to seek a life settlement hasn’t always been on the table for seniors. Typically, policyholders were presented with only two options when they decided they no longer needed their policy:
- Surrender the policy for its cash value; or
- Stop your premium payments and allow the policy to lapse, rendering all your previous premium payments worthless.
Life insurance companies have a vested interest in these two options, but now, thanks to increased regulation and consumer education, you have a third option, one that allows you to receive a larger sum than the cash surrender value, while still freeing yourself up from an unwanted policy or costly payments.
Today’s life settlements grew in part out of viatical settlements. These end of life settlements became commonplace in the 1980s as the epidemics of AIDS and cancer led many young terminally ill policyholders to find a way to liquidate their assets to pay for end of life care or final celebrations before their passing.
Now, thanks to an increase in regulation in the life settlements market, healthy seniors who still may have several years to live can take advantage of this opportunity to free up financial resources and get out from under the thumb of life insurance companies.
Life Settlement Market on the Rise
In the last few years, Windsor has seen a rise in demand for life settlements coincide with an overall rise in the market. As of 2015, a total of 45 states had some form of life settlement regulation on the books. This increased oversight means greater transparency and protection for consumers and increased options for seniors who may still be perfectly healthy, but want to liquidate their assets for a variety of different reasons.
This shift has led to more seniors looking into life settlements as an option, which means that there’s more information than ever out there about how—and why—to pursue a life settlement.
Here are just a few scenarios that may lead you to consider a life settlement:
- You purchased a life insurance policy to provide for your children, who are now financially well-off and don’t require this assistance. Instead, you decide to use the resources now to set aside funds for your late in life medical care so as to not put any financial pressure on your adult children.
- You and your spouse purchased a policy together, but have divorced and have no children. You still own the policy, but have no need for the benefit and could use the assets to check off some items on your “bucket list.”
- You are on a retirement budget and find that your monthly premiums are creating more trouble than they’re worth. You want to see if you can get additional value for your policy instead of letting it lapse or merely accepting the cash surrender value.
- You anticipate that your medical care will become costly and you would like to secure Medicaid, however, you need to pursue asset liquidation in order to qualify For Medicaid.
No matter what your current situation, it’s clear that a life settlement can help you take control of your finances and prevent losing years of premium payments to the insurance companies’ fat bottom line.
Benefits of Life Settlements
There are a number reasons people ask “Why sell your life insurance?” As the market has changed over the years, more seniors are looking to life settlements to help them manage a major life change, from divorce to retirement, to the joy of seeing your children achieve their own financial independence. Instead of simply accepting what your insurer offers for the cash surrender value of your policy, you can work with an advisor at Windsor to generate substantial liquid assets, right when you need them the most.
The market has grown in part due to greater regulation and consumer awareness about how life settlements can help seniors in the following situations:
- They can no longer afford costly premiums;
- They need to liquidate assets for medical care or other expenses;
- They no longer require the benefit.
The benefit of a life insurance policy to the loved ones you leave behind is quite a gift indeed, but if you no longer need to this benefit or your circumstances would improve if you had access to those resources right now, then a life settlement will likely be an excellent fit.
In addition, you can also use the gains from a life settlement to give your investment portfolio a boost. On the other hand, if your current assets are stretched, liquidating a life insurance policy will give you a comfortable cushion, while helping you spend down assets to qualify for Medicaid.
Life settlements offer benefits no matter what your financial situation, but before you move forward, take the time to ensure that you qualify for this opportunity.
How Do You Know if You Qualify for a Life Settlement?
The best way to approach a life settlement transaction is to work with a trusted advisor who will respect your privacy and your autonomy while working with trusted buyers to get you the greatest possible payout.
Insurers have traditionally given policyholders few options, and often offer a low “surrender” value on a policy. Windsor Life Settlements offers policyholders a clear process to convert their life insurance policy into a more lucrative payoff. As a life insurance broker, Windsor Life Settlements has many experienced members who will offer one-on-one counseling throughout the process. Once you contact Windsor Life Settlements, we will walk you through the process step-by-step in order to answer all of your questions. As a general guideline, there are some requirements you typically must meet in order to qualify but feel free to contact us to review your eligibility:
- 65 Unlike a viatical settlement or an accelerated death benefit, a life settlement is not intended for someone who is younger and facing a terminal illness. If you’re thinking about pursuing a life settlement you should be at least 70 years old.
- A Death benefit of at least $100,000. If your death benefit is under $100,000, than a life settlement is probably not the best fit for you and your family, your policy would not qualify.
- Minimum length of the policy. This is consistent from state to state, you typically need to have held your life insurance for at least 24 months in order to receive a life settlement benefit.
- Whole life/universal life/term life. If you do not hold a universal life policy, don’t immediately let this stop you. If you do not hold a universal life or whole life policy, don’t immediately let this stop you. At Windsor, we are happy to look into converting your term policy into a permanent product prior to pursuing a life settlement so that you can still qualify for a life settlement.
Considerations/Risks of Life Settlements
Engaging in any major financial transaction involves some level of risk, but you should know that increased regulation in this industry means that you should be provided with clear, transparent, ethical guidance at every turn. Before committing to this process, consider the following concerns and weigh your own personal sense of comfort and risk:
- Fees. A reputable firm will not charge any fee to prepare your life settlement paperwork. You are engaging in a transaction in which both parties stand to benefit, so it simply doesn’t make sense to pay a fee up front for this service.
- Commission and Percentages. As you work through your life settlement process, you should be able to ask about how your broker will be compensated and how any commission fees will be rendered. An ethical broker will be clear and transparent with you about how they and their firm stand to benefit, while also working to secure you the highest benefit possible.
- Privacy. Completing life settlement paperwork often involves acquiring and compiling private medical information. Work with a firm who you trust will keep your important documents confidential, and treat your health information with the respect it deserves. Windsor Life Settlements has a strict confidentiality policy. We will not share your information without your written permission. Any written authorization for sharing this information will explain who may receive the information and why it needs to be released. The employees of Windsor Life Settlements all have reputations for abiding by the highest standards of business ethics and integrity. We are committed to client confidentiality and fraud prevention with strict internal compliance processes.
- Personal Comfort. For some seniors, the idea that a company will benefit following your death can be initially uncomfortable. Talk through the benefits and any areas of discomfort with your broker and your family and friends to make sure this truly is the right fit for you.
- Tax Concerns. Always discuss any potential tax implications with a tax professional before moving forward. There are many benefits to pursuing a life settlement, including the ability to spend down assets to qualify for Medicaid, but you should go into the transaction with a clear sense of what your benefit will do to your current tax situation.
- Timeline. At Windsor, we typically complete the life settlement process in 90-120 days, although very simple cases can be expedited. We are happy to work with you on your liquidation goals and will give you honest, clear responses so that you can manage your timeline and plan for your immediate future.
At Windsor Life Settlements, our goal is to get you the maximum value for your life insurance policy. Our knowledge of the life settlement market and our relationships with investment groups make for a quick and thorough evaluation of your policy. Transparency is important in all financial matters, which is why Windsor Life Settlements will keep you up-to-date on all the details of the sale and transfer of your policy. You can also rest assured that we will follow industry best practices to keep your private financial and medical information secure.
To find out more, contact one of our principals at 1 (888)-994-6376, and get started today!
The Life Settlement Calculator
A basic life settlement calculator provides an instant life settlement quote. Get an honest assessment of your life insurance policy and your options on the secondary market. Instantly discover if you can sell your policy or if it makes more financial sense to keep it.