Life insurance provides solutions to meet various financial needs. Over time, however, circumstances can change and with them the need for insurance. In fact, nearly nine out of ten universal life policies never mature in a claim. Life Settlements allow policyholders an option not previously available.
A “Life Settlement” is a lump sum payment to the owner of a life insurance policy by one of many funding sources in exchange for the ownership of the policy. Never before have non-terminal policyholders been able to receive capital in excess of their policy’s cash or surrender value to increase their cash flow.
Generally, anyone over age 65 who has $100,000 or more in life insurance coverage that is beyond the period of contestability may qualify for a Life Settlement regardless of health condition. Other factors considered in the negotiations are the policy’s cash surrender values and the cost of premiums. A basic principle to remember is that the older the age of the insured and/or the more health complications that exist, the higher the settlement.
The fundamentals of the Life Settlement transaction have technically been around since 1989 in the form of “viatical settlements”. Individuals at any age can qualify for a viatical settlement if they have a chronic or terminal illness such as Cancer or HIV. Viatical Settlements have always been contingent upon the health of the insured, whereas Life Settlements are based primarily upon the age of the insured. In most states, a terminally ill senior applicant will need to use a licensed Viatical Broker and/or Funding Source, in order to abide by state rules and regulations and to retain the tax-exempt status on the settlement.
According to industry reports, Life Settlement proceeds are tax-free up to the cost basis (premiums paid since policy inception). They are taxed as ordinary income from basis to cash surrender value and proceeds above the cash surrender value are taxed as capital gains. Trinity Financial Services, LLC is not a licensed tax consultant and recommends that all applicants consult their tax advisor to address any tax concerns.
Once the Life Settlement change of ownership has been recorded with the insurance company and the policy holder has received their money, the Life Settlement Funding Source will continue to pay premiums throughout the life of the insured. All types of life insurance qualify including Group, Term, Whole-life, Universal, Survivorship and Key-man policies. Trinity Financial Services, LLC provides this service free of charge and there is no obligation to accept a settlement at any time.
Find out if a life settlement is right for your or your client by filling out our online evaluation form.