What Advisors (And Everyone) Need To Know About Life Settlements April 24, 2015 (San Francisco) by Carole S. Fiedler Most financial advisors I speak with have heard of Life Settlements, but do not fully understand how they work. They are not sure how their clients can benefit or even how to recognize when a Life Settlement should be considered. Many “captive” insurance agents are prohibited from even mentioning the Life Settlement option, though they are fully aware that a life settlement’s large lump sum liquid payments can greatly benefit both the agent and especially the client. What are Life Settlements? A Life Settlement is the sale of an in-force life insurance policy, for an amount discounted from the face value by an insured 65 years of age or older, and who does not have a terminal illness. Life Settlements create liquidity from a previously illiquid asset – the underlying life insurance policy. By liquidating a life insurance policy at the right time, options are created while other assets that may be less beneficial to liquidate can stay in place. One example would be selling one policy to provide funds for premium payments to maintain another policy. It’s a fact: As people age their need for life insurance changes. Policies are often obtained to protect a spouse, to cover college costs of the children, perhaps make mortgage payments or pay off the...
WHY SELL A POLICY? Or, WHEN SELLING A POLICY MAKES SENSE In my last blog I discussed Viatical Settlements for people living with a terminal illness. When someone gets seriously ill, his or her expenses go up and their income goes down. Having the option of selling a policy by utilizing a viatical settlement is a resource that many have found life enhancing when they need it most. But what about people who are older and have policies they no longer need or want? That’s when a Life Settlement might provide a better option that either surrendering the policy for cash value or simply letting it go altogether. There are many reasons someone might want to sell a policy other than the need for cash due to a terminal illness. It’s a fact that more than 80% of all life insurance policies either lapse or are surrendered for the cash value. When this happens, the insurance company never pays the death benefit yet gets to keep all the premiums paid. So why would anyone pay premiums for a life policy for many years then simply let a policy go? Perhaps the reasons for getting the policy in the first place have changed or no longer exist. A spouse passes away, a mortgage is paid off, the kids have graduated college and are successful on their own… When life insurance is deemed no longer needed, rather than simply letting the policy go, the owner might want to look into a life settlement if the insured is over 65. What happens when premiums get too expensive to pay? This is an example of...
WHEN SELLING A POLICY, TIMING IS IMPORTANT! Part 1, Life Expectancy (LE) When companies review the policies they are going to bid on with the intention of buying, they are first looking at two main criteria: What is the life expectancy of the person who is insured, and what is the premium expense for the duration of that life? So, as a potential policy seller, the first thing to think about when considering either a life or a viatical settlement is life expectancy (LE). For a viatical settlement, the guidelines are clear. Any insured person who is diagnosed with a life expectancy of 24 months or less, automatically qualifies for a viatical settlement. This was clarified in 1996 when the Health Insurance Portability and Accountability Act (HIPAA) was passed. This was before life settlements were offered. They began roughly in 1998. Under the Health Insurance Portability and Accountability Act (HIPAA), the proceeds garnered from viatical settlements for the chronically or terminally ill are free of taxes. HIPAA further defines terminally ill as a patient who has received a diagnosis “by a certified physician to have a life expectancy of under 24 months.” Being chronically ill under HIPAA means the patient has become “permanently and severely disabled by an illness.” The additional requirement for the proceeds of the sale being tax-free is that only properly licensed companies are used – both the broker and the provider must be licensed. ~~~~~~ ~~~~~~ As clear as it is to qualify for a viatical settlement, the opposite is true for life settlements. There is no hard and fast guideline like there is...
Whether seeking a viatical settlement or a life settlement, this is often the first question people ask me. “How much money will I get if I sell my life insurance policy?” It’s also one of the most difficult to answer because there is no easy answer. Telling a prospect a percentage or dollar amount that I know will entice them to complete my application does not serve anyone. To do so would be misleading. I don’t want to mislead anyone, nor do I want to raise someone’s expectations. That said, after an initial phone conversation, I can give you a pretty good idea of whether this is an option that makes sense or not. And, I do to taking into account your particular situation, health condition, age and policy type. Once I understand this, I can generally advise if it’s worth applying and taking it further, if the case will not qualify in the current marketplace or, if there may be a more beneficial alternative! Each case is different and many factors must be taken into account before we will know how much someone will get should their policy be successfully sold. Until all the facts are known and verified, a bona fide offer cannot be made. Once all the information is gathered and evaluated (typically by the settlement broker), it should then be presented to those companies which would be most interested in it. A competent and independent life settlement broker will create a competitive bidding war between multiple qualified providers, thus ensuring the seller the highest amount of money (the settlement) for their policy. It’s important to get multiple offers because each buyer has...
LIFE INSURANCE SETTLEMENTS 101 – NEW REASONS to buy LIFE INSURANCE TODAY Part 2 – Read Part 1 in the series for the History Of Life Insurance Settlements Traditionally, life insurance policies are purchased in concert with a major life occurrence: A marriage, the birth of a child, the purchase of a home, formation of a business partnership. Conversely, life insurance policies are often given up for these reasons: a divorce, children graduate college, a mortgage is paid off, a business partnership dissolved or the death of a partner. Perhaps the premiums are getting too expensive or the life insurance is no longer needed. Although life insurance was created to financially benefit the beneficiaries after a death, today these same policies can benefit the insured while they are still alive. Since the early 1990s the option of selling an in-force policy has been available. Rarely are people aware that when situations change, and they may need some financial relief, their policy can be sold for its current cash value on the secondary market. Most do not know that a secondary market for in-force life policies even exists. A New Reality The new reality is that the original reasons for buying life insurance – to protect others when the insured dies – has been expanded upon. Now you can consider life insurance as a planning tool should you become ill or should your situation change…it is something you can collect on while you are still alive. The industry providing this option is called the LIFE SETTLEMENT INDUSTRY. It is not the insurance industry, nor does the money come from the insurance...
An Introduction to Life Insurance Settlements (Part 1) The less you know, the more you believe. Think about it. There is a tremendous amount of confusion about viatical and life settlements and rightly so. The industry was once unregulated and fraught with fraud. It was like the wild, wild west. Happily, that is no longer the case; the companies and the players have changed, as has the entire industry. In fact, at this time, the industry is highly regulated and specialized licenses and training are required. But seriously, how could it be that something that is so positive, something that enhances people’s lives so much when they need it most, has remained such a secret for more than two decades? For starters, big insurance companies don’t want you to know and that’s the best way to spread the word – through their own life insurance agents. (Please take note: A life insurance agent is not a life settlement broker.) In fact, as a direct response to the work the then viatical settlement industry was doing in the 1990s, the insurance companies began to offer Accelerated Benefit and/or Living Benefit riders. This is a very positive thing and in some situations, specifically when someone has 6 months or less to live, they may offer a higher cash payment than a viatical settlement would. (Another reason why it is important to speak with a settlement specialist who can help you determine which option is best for your particular situation.) In this article, I will share with you the story of the industry, of which I am a “pioneer”, and how I’ve thrived...
The Federal Government is this country’s largest (non-private) employer. There are millions and millions of full-time and half that again for part-time workers. These people include our men and women in the armed forces, postal employees, IRS workers, politicians, retirees from all these organizations, etc. Federal employees automatically get basic life insurance, which is self-insured by the Government and called FEDERAL EMPLOYEES GROUP LIFE INSURANCE (FEGLI). This basic coverage is typically a minimal amount, often equal to one year’s annual pay. Federal employees also have the option, at times, to obtain more insurance referred to as “optional” Insurance. This optional insurance comes in multiples of the Basic amount and employees have the ability to choose how many multiples, up to 5, of their salary they wish to be insured for at the low group rates. When someone separates or retires from service, they are given 31 days to decide if they want to take their life insurance with them or not. By taking control of your own life insurance coverage and planning ahead, you gain future options that won’t otherwise exist. One example is that IF you should get seriously ill, you will have options to convert that policy to cash by way of a viatical settlement. It’s most important that you understand what to do in order to maximize your benefit. I am typically able to ascertain during an initial phone call, what steps need to be taken to derive the most beneficial options going forward.* The first thing to understand is that the way the FEGLI Rules are written, it can be beneficial to split the life insurance...
