Professional advisors often conduct due diligence as part of their fiduciary duty when recommending financial solutions to clients. This FAQ page is designed to support those efforts and to help you acquire the necessary knowledge to determine whether a life settlement is the most suitable financial product to maximize the liquidity value of unwanted insurance assets.

Entrusting your clients’ life settlement transactions to an experienced life settlement broker is one of the most important decisions you will make in your practice. Asset Life Settlements looks forward to answering your questions and to helping you make the best choice on your clients’ behalf. Feel free to call us at 1-855-768-9085 for a no-obligation policy pricing analysis.

For more than 20 years, the secondary market for life insurance has provided a trading environment for policy owners to sell unwanted life insurance policies to institutional buyers. The market is comprised of a variety of business entities, including life settlement brokers, providers, investment firms, law firms, medical underwriters, consultants, actuaries, trustees & escrow agents. The secondary market continues to gain traction because it benefits consumers seeking to monetize a static insurance asset, and because it benefits institutional buyers seeking investment returns from a non-correlated asset not tied to the volatility of the stock market.

The secondary market for life insurance emerged in the late 1980s following the AIDS epidemic that left many terminally ill patients in need of money for treatment – a transaction known as a Viatical settlement. Today, the life settlement industry has become a major financial market and viable opportunity for seniors over the age of 65 to convert unneeded policies for more than their cash surrender value (CSV), often with favorable tax treatment. The legal basis for life settlements as a legitimate option for life insurance owners may be found in the Grigsby v. Russell decision from the U.S. Supreme Court in 1911.

A broker represents policy sellers (the insured) and owes a fiduciary duty to the seller to act in the seller’s best interests. The broker will request pricing bids from multiple providers in order to obtain the highest possible cash offer for the seller’s policy. On the other hand, providers are not required to have a fiduciary duty to the seller, as their duty is to represent the policy acquisition goals of their investors.

As of 2018, 43 states and the territory of Puerto Rico regulate life settlements, affording approximately 90% of the United States population protection under comprehensive life settlement laws and regulations. To further protect consumers, a handful of states have recently enacted life settlement disclosure laws requiring that policy owners be made aware of life settlements as a possible alternative to lapse or surrender.

If you have reached a stage in your life where life insurance is no longer needed and the premiums are becoming a financial burden, it may not make sense to keep the policy. But instead of allowing the policy to lapse or surrendering it back to the carrier for a small payment, you will want to explore your eligibility for a life settlement in order to obtain the highest possible value for your policy. Policy owners today often use the proceeds to enhance their retired lifestyle, to pay for medical bills or long term care, or for making donations to a charitable organization. Other reasons to pursue a life settlement include:

  1. A change in interest rates or cost of insurance which increases premium payments
  2. A change in a policyholder’s business situation, such as a retiring executive
  3. The need to increase the cash holdings in your investment portfolio
  4. The elimination of the federal estate tax, making an existing policy unnecessary
  5. Bankruptcy
  6. Divorce

Most policies sold in the secondary market for life insurance are Permanent life insurance policies. The best 3 examples are: – Universal Life (UL) – Joint Survivorship Universal Life (SUL) ­and Term Policies Still Convertible to Universal Life (If term policies can still be converted into a UL product without any additional underwriting requirements by the life insurance carriers). In most cases, buyers will not consider a non-convertible term life insurance policy for purchase, because of the risk that the insured will outlive the term coverage. A Whole life insurance policy typically has a large amount of cash value built up within the policy, and high required premiums, which make the pricing for a life settlement transaction unattractive. Variable life insurance sold in a life settlement transaction is considered a securities transaction, which limits the number of buyers in today’s marketplace. Asset Life Settlements does not accept variable life settlement policies for review.

The amount you could receive for your policy will depend on many factors. Industry statistics indicate that, on average, policy sellers receive three to four times the cash surrender value (CSV). However, the key factors that influence the amount you receive include:

  1. Estimated life expectancy
  2. Amount of annual premiums
  3. Policy face amount
  4. The insurance carrier’s rating
  5. Policy current account value (cash build-up or loans, etc.)
Buyers in the secondary market for life insurance will use the information above, along with a policy illustration provided by the insurance company, to calculate a policy valuation. The calculation is based on a complex financial and actuarial model, applied to the specific details of your own policy and life expectancy information. The calculation generates a policy valuation that represents the economic present value of the policy today. If the life settlement valuation is higher than the current cash surrender value offered by the insurance company, a policy owner has the option of taking the policy to the life settlement marketplace for formal review and offers. As a general rule of thumb, for those policies that end up being sold in today’s marketplace, the average purchase price typically ranges between 10 to 20 percent of the policy face amount. Lower annual premiums, a shorter life expectancy, or a combination of the two are factors that could increase life settlement offers significantly.

The 2017 Tax Cuts & Jobs Act (TCJA) reverses the effects of IRS Revenue Ruling 2009-13 for taxation of life settlements transacted after Aug. 25, 2009. The ruling simplifies the process and eliminates the onerous IRS requirement that the tax basis of a policy be reduced by the cost of insurance. Removing this complex requirement provides more favorable tax treatment for seniors selling policies. The TCJA also doubles the estate tax exemption to $11.2M for individuals and $22.4M for couples. This increase in the exemption will reduce the number of U.S. estates subject to the Federal estate tax. If you have “ultra high net worth” clients, this may impact, or reduce the need for, the life insurance component of some estate plans. To learn more about the tax consequences of selling a life insurance policy in the secondary market, click here to access our one-page summary.

Generally, the process can take 90-120 days, depending on the intricacies of the case before a life settlement case is completed and the seller receives their proceeds or cash settlement. There are ways to speed up the process, but we would have to work closely as a team to make that happen. Asset Life Settlements is here to help you do that if requested.

Buyers of policies in the secondary market for life insurance are typically looking for policies insuring people who are age 65 years or older. However, without significant medical impairments, the insured’s who sell policies are more likely to be age 75 and older, with an estimated life expectancy of 12 years or less. Insured’s in their 90’s can also sell their policies, but buyers are looking for those policies to have a maturity extension rider (MER), that would carry the policy or death benefit past age 100.

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