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Defining
the Terms
A
life settlement is the sale of a life insurance
policy to another person or company in return for a cash payment
of less than the full amount of the death benefit.
A life settlement provider
is the person or company that becomes the new policy owner
in return for a payment made to the seller. The life settlement
provider becomes the policy owner, must pay any premiums that
are due, and eventually collects the full amount of the death
benefit from the insurance company.
The life settlement broker
is the person or company who represents the seller of the
policy and can comparison shop for life settlement offers.
The buyer pays the broker a commission if the sale is completed.
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Questions
to Consider
Do I still need life insurance protection?
Will I Qualify for a new life insurance policy in the future?
If I sell my policy, how will they decide how much cash
cash I get?
If I sell my policy, will there be any costs I have to pay?
If I sell my ploicy, will the money be put into an esrow
account? If so, who will the escrow ageny be? Does state law
require the agent to be licensed?
Is my policy an employer or other group policy? If so, do
I need their permission to sell it?
If I sell my policy, who will be the legal owner?
Is the viatical settlement provider I plan to sell to allowed
to do business in my state?
After I sell my policy, can the buyer resell it?
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Understanding
Life Settlements
A
life settlement is the sale of a life insurance policy to a
third party. The owner of a life insurance policy sells it for
a cash payment that is less than the full amount of the death
benefit. the buyer becomes the new owner and/or beneficiary
of the life insurance policy, pays for all premiums and collects
the full amount of the death benefit when the insured dies.
People decide to sell their life insurance
policies for many reasons. When an individual with a terminal
or chronic illness sells his or her life insurance policy, that
is known as a viaticle settlement. When an individual who does
not have a terminal or chronic ilness sells a policyfor other
resons, including changed needs of dependants, wanting to reduce
premiums, and cash for meeting expenses, that is known as a
life settlement. |
Considerations
- Contact
a professional tax advisor. Find out the tax implications.
Proceeds are only tax-free under certain circumstances.
- Know
that your creditors could claim the proceeds.
- Find
out if you'll lose any public assistance benefits such as
food stamps or Medicaid if you get a cash settlement.
- Know
that you must provide certain medical and personal information
to third parties who will be paid the proceeds from your
policy upon your death.
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