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1. Why would someone sell their life insurance policy?
2. Is it legal to sell a life insurance policy?
3. Who is eligible to sell a life insurance policy?
4. What types of life insurance policies can be sold?
5. How much money will sellers get for their policy?
6. What happens after a life insurance policy is sold?
7. Are there any application costs or medical exams?
8. How long does it take to sell a life insurance policy?
9. How large does the policy need to be?
10. Does the entire policy need to be sold?
11. Will premiums be due after the policy is sold?
12. What factors go into the offer that I will receive?
13. Do all Life Settlement brokers charge the same commission?
14. Is there a difference between a Life Settlement broker and a buyer representative?
15. If I enter a Life Settlement contract, when will I get my money and who will pay me?
17. What if I die shortly after selling my policy?
18. What happens after I get my money?
19. What if I don’t want to be contacted about my health status?
20. How will I know who will be calling me about my health status and how often?
21. Are there other options available besides selling my policy?
22. Can a Life Settlement affect public assistance I may be receiving?
23. What if I want to obtain another life insurance policy after I have sold my current policy?
24. What are the tax implications of a life settlement?
1. Why would someone sell their life insurance policy?
There are many reasons why someone would sell a life insurance policy, however the most common reasons relate to changing needs such as:
- Term period expiring and can not afford or no need to convert to permanent coverage
- Medical or long term care is required
- Premiums have become unaffordable
- Financial hardships are present
- New estate planning or investment objectives
- Death or divorce of a spouse
2. Is it legal to sell a life insurance policy?
Yes. The Supreme Court made this possible back in 1911, ruling that life insurance is an asset like a house or car that may accumulate in value and be bought or sold.
3. Who is eligible to sell a life insurance policy?
The policyowner is the only one who has the legal right to sell the policy. In most cases, the cooperation of the insured is also necessary in order to complete the transaction.
Our broad purchasing requirements generally cover seniors age 65 or older who have experienced a recent change in health, a life expectancy greater than two years, and who own a qualified life insurance policy. A businesses can also benefit particularly when dealing with the nuances of a sale or company closure, or when dealing with key-man or corporate-owned policies.
4. What types of life insurance policies can be sold?
Generally all types of life insurance policies can be sold, including Term, which may be a surprise to consumers. Although Term policies do not have cash value, they often have value as a Life Settlement.
5. How much money will sellers get for their policy?
There are many factors that determine a policy’s market value such as age, medical condition, life expectancy, and policy type. Typically, a seller can expect to receive amounts equal to 20%* of a life insurance policy’s face amount. Please note that funders will typically pay significantly more than the cash surrender or lapse value.
*Deloitte Development LLC. (2005). The Life Settlement Market.
6. What happens after a life insurance policy is sold?
After a policy is sold, all rights and obligations of the life insurance policy are transferred to the new owner. Sellers are no longer responsible for paying premiums and are free to use the proceeds however they wish.
7. Are there any application costs or medical exams?
No. There are no application costs or medical exams required for sellers.
8. How long does it take to sell a life insurance policy?
The process typically takes 12 weeks.
9. How large does the policy need to be?
Generally $250,000 to $100,000,000.
10. Does the entire policy need to be sold?
No, any portion of a policy can be sold with the remaining death benefit being kept in the name of the original beneficiary
11. Will premiums be due after the policy is sold?
No, once the policy is sold, the client will have no future premium obligations whatsoever.
12. What factors go into the offer that I will receive?
The gross offer for your policy is based upon facts such as how long you are expected to live, the amount you pay for premiums, the rating of your insurance company, and your policy’s provisions. The net offer depends upon the commission and fees charged by your Life Settlement broker.
13. Do all Life Settlement brokers charge the same commission?
No. Some brokers charge a commission based upon the face value of the policy (often 6%-8%). Others charge between 30% and 40% of the gross offer received. In fact, not all brokers will show you the gross offer, but instead only show you what is left after they have taken an undisclosed amount of commission. The Quantum Group is committed to complete transparency.
14. Is there a difference between a Life Settlement broker and a buyer representative?
Yes. Although both a Life Settlement broker and buyer representative will help you with the sale of your policy, there are important differences between them. A Life Settlement broker, such as The Quantum Group, works for you. On your behalf, The Quantum Group submits your policy proposal to multiple buyers to find the best offer for you. A buyer’s representative works only for the buyer and will only provide you an offer of what that buyer is willing to pay. The offer may not be the best offer for you or the highest return on your investment.
15. If I enter a Life Settlement contract, when will I get my money and who will pay me?
You will receive your money either directly from the buyer or from an escrow agent. The date that you will receive this money varies. Times typically range from three to seven business days after the insurance company has confirmed the completed transfer of ownership.
16. What if I change my mind?
If you change your mind about selling your policy, you can cancel the Life Settlement contract at any time up to the end of the rescission period. Some states have a rescission period of three days, while others have a 15-30 day rescission period.
17. What if I die shortly after selling my policy?
If you die during the rescission period, the Life Settlement contract will automatically cancel.
18. What happens after I get my money?
Once you have sold your policy, all policy rights and obligations transfer to the buyer. You are no longer responsible for paying premiums and are free to use the cash proceeds from the sale however you desire. After the sale, the buyer may begin calling on the health status of the insured.
19. What if I don’t want to be contacted about my health status?
If you do not want to be contacted about your health status, you may appoint an adult person or persons to be contacted on your behalf. That person must be in regular contact with you.
20. How will I know who will be calling me about my health status and how often?
The buyer must give you the name, address and phone number of the person who will be contacting you or your contact person(s) about your health status.
21. Are there other options available besides selling my policy?
Your insurance company may offer options, such as accelerated death benefits, loans and surrender of the policy for its cash value. If you are concerned about other options, you may want to contact your insurance agent or financial advisor to see what options are available.
22. Can a Life Settlement affect public assistance I may be receiving?
Receipt of a Life Settlement may affect your eligibility for public assistance programs such as medical assistance (Medicaid), Aid to Families with Dependent Children (AFDC), supplementary social security income (SSI) and drug assistance programs. If you are concerned about how a Life Settlement payment will affect you, your family and your spouse’s eligibility for public assistance, contact your social service agency before entering into the Life Settlement process.
23. What if I want to obtain another life insurance policy after I have sold my current policy?
An insured’s health condition may have changed since the first policy’s issuance date. Consequently, there is no guarantee the insured will be able to obtain a new policy or one of acceptable terms. Should the insured desire to maintain a life policy of some denomination, the insured should notify the policyowner and then proceed in obtaining the new policy before entering into the Life Settlement transaction.
24. What are the tax implications of a life settlement?
Life Settlement proceeds may be tax free up to the amount of the premiums that were paid on the policy. Ordinary income tax may be due on the amount up to the cash surrender value. Capital gains tax may be due on the amount above the cash surrender value.
In the event a policyowner is a trust or corporation, proceeds may roll into a replacement policy without triggering a taxable event. This practice is referred to as a 1035 exchange.
This information is not tax guidance. As with any tax-related issue, The Quantum Group advises you to consult your professional tax advisor.