FAQ
Q. What is a life settlement?
This is the sale of a life insurance policy to a third party. The insured
generally receives an amount that is greater than the cash surrender value. Sometime
these polices are then pooled and sold in the secondary market.
Q Is it legal?
Yes, the life settlement market is regulated by state insurance departments.
Some states have stricter laws than other.
Q What are the most common reasons for selling a life insurance policy?
• The policyholder is ill and need the proceeds for health coverage
• They can no longer afford to pay the insurance premium and will lapse the policy
•
No longer need the life coverage
Q Who should consider selling their policies?
Generally persons over age 65 or those terminally ill. The policies are usually
non- contestable or
at least 2 years old.
Q What types of insurance policies are suitable?
The typical policies that are sold are Universal life, Survivor Universal Life ,
Variable life and term life.
Q Do I still have death benefit coverage after the sale?
No, once the policy is sold you are no longer the owner of the policy, the death
benefit amount goes to the investors.
Q Can I change my mind after the sale?
Yes, generally there is a 15-day grace period where if you change your mind the
investor will reverse the sale and you return the monies paid for the
policy.
Q Are there any tax consequences to me?
Generally no tax consequences as long as the amount the policy is sold for is less
than The cumulative premiums, the excess is taxable. Taxed as ordinary income rate
on amounts up to the cash surrender value and capital gains rate in amounts in excess
of the cash surrender value. Should consult a tax advisor.