Life Settlements With Apex
Know what you’re getting into, and what you’re getting out of it. Learn how a Life Settlement works so you can decide if it’s right for you.
Quick terminology guide
Before you go in-depth, here are the most relevant terms:
Death Benefit
The amount of money that will be paid to the beneficiary (or beneficiaries) upon the death of the insured person.
Face Value
The stated dollar value of the life insurance policy. This amount usually equals the policy’s death benefit.
Cash Surrender Value
The amount paid by an insurance company to the policyowner if they voluntarily cancel or surrender their policy.
Viatical Settlement
A type of life settlement designed exclusively for policyholders who are terminally or chronically ill.
What Is a Life Settlement?
A Life Settlement is the sale of a life insurance policy in exchange for a lump sum cash payment.
In a Life Settlement, the settlement amount will be more than the cash surrender value of the policy, but less than the death benefit .
In exchange for the lump sum payment, the seller will no longer be responsible for premiums or have rights to the death benefit . The buyer of the policy will assume all aspects of ownership, including future premium payments, as well as the death benefit .
Most people purchase a life insurance policy for financial protection. But when the need for protection has passed, or the policy premiums become an unwanted burden, a Life Settlement can be a great option.
Life settlements, In greater detail
Read on for an in-depth look into how life settlements work, their regulations, history, and everything you need to know to make an informed decision.
Why pursuing a Life Settlement?
Your life’s priorities are always changing. Perhaps your premiums have become unaffordable, you no longer need the coverage, or you simply want the cash to fulfill a lifelong dream.
Life Settlement Options
There are multiple options when it comes to Life Settlements. The most common types are traditional, viatical , and retained death benefit settlements. Here’s a closer look at each:
Traditional
A traditional life settlement is the most common way to sell your life insurance policy. Insured individuals who are age 65 and older and hold a life insurance policy that is worth $100,000 or more may be eligible.
Viatical
A viatical settlement is quite similar to a traditional life settlement, with the exception that it is designed specifically for individuals who are chronically or terminally ill. There is no minimum age requirement.
Retained Death Benefit
This option helps you retain a portion of the death benefi t after the life settlement . The buyer will assume the payment of the premiums and will receive the remaining portion of the death benefit .
Weighing your available options
A life settlement may or may not be the right option for you. But the key is to understand your options and make an informed decision. Here are some advantages and disadvantages of a life settlement for consideration:
- The primary advantage of a life settlement is financial. By eliminating ongoing premium obligations and receiving a lump sum of cash, you find yourself with new money in your budget. Sellers have many uses for these funds, from payment of medical or care expenses to supplementing retirement income and travel.
- The disadvantage, of course, is that the benefit of the policy will be paid to the new owner, and not the seller’s beneficiary. In addition, the cash payments are considered income, and therefore may have tax consequences and impact your eligibility for Medicaid.
- Other considerations include transaction costs or commissions, if you are working with a broker. Typically, a broker charges a commission as a percentage of the sale proceeds, and rates can vary. Know before you get into it.
- In general, your original decision to purchase life insurance was a financial one — to protect against a risk that could bring financial harm. Your decision to sell a life insurance policy is often financial as well: funding your next chapter is more valuable than protection.
How to determine eligibility
When it comes to selling your life insurance policy , multiple variables can affect your eligibility. The 3 most basic requirements are:
A step-by-step guide to the Life Settlement process
Apex is committed to simplify the complex process for you. Here are the steps of a life settlement process, so you know exactly what to expect when selling your policy. Keep in mind that although every process is different, a typical transaction can take 4 months to complete².
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1
Application
The life settlement process begins with collecting some basic information about the owner, the insured, and the policy. Apex offers a simple application that includes release forms so additional information can be requested for underwriting.
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2
Information
Detailed information is collected for underwriting of both the policy and the insured. For the policy, information will include the policy’s costs, features, and policy illustration. The releases will be used to gather the insured’s medical records for review.
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3
Review
Once the policy and insured records are collected, we have enough information to determine the value of your life insurance policy, and the amount of cash we can offer you to fund whatever you have planned next.
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4
Offer
After completing the review, the provider extends an offer either directly to you or to your advisor. There is no obligation to proceed with a sale; it is 100% your choice whether to accept or decline the offer.
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5
Closing
Once you accept the offer, the provider will prepare agreements (according to your state's requirements). After contracting and diligence are complete, the request to change ownership + beneficiary will be sent to the carrier.
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6
Funding
Once the change of ownership and beneficiary is verified, the settlement payment funds will be transferred to the policy seller through a single direct deposit or a check. At that point, you are free to enjoy the funds at your discretion!
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Does a life settlement incur a tax liability?
The IRS provides guidance for the taxation of life settlement proceeds. When you sell a policy , the proceeds are considered to fall across the following three categories:
Other regulations on the life settlements industry
Approximately 90% of the population of the United States is covered by life settlement regulation. In 43 states and the territory of Puerto Rico, comprehensive laws and regulations exist for life and Viatical Settlement transactions. Regulations in most states include:
- Licensing of brokers and agents.
- Licensing of providers (purchasers).
- Required disclosures of risks and alternatives.
- Required notice of taxation.
Consult with a tax professional for clarity on both the IRS guidance and how your state of residence would view life settlement proceeds. Apex Settlement Group does not provide tax, legal, or accounting advice. This information is not intended to provide or to be relied on for tax, legal, or accounting advice. Consult your personal tax, legal, and accounting advisors before getting into any transaction.
¹ Baby Boomers have an average of $152,000 saved for retirement, according to the 19th Annual Retirement Survey of Workers conducted by the TransAmerica Center for Retirement Studies. This is not nearly enough to last through retirement. Based on information from the Bureau of Labor Statistics, adults between ages 65 and 74 spend, on average, $48,885 a year. Source: Investopedia
² Source: LISA Website