When it comes to managing your life insurance policy, you might find yourself weighing the options of a life settlement vs surrendering the policy. Understanding the differences between these two choices can significantly impact your financial future, especially if you’re considering how to cancel a life insurance policy or converting your policy into cash.
What is a Life Settlement?
A life settlement involves selling your life insurance policy to a third-party investor. In return, you receive a lump sum payment that is typically higher than the policy’s cash surrender value but less than its death benefit. The buyer then takes over the policy, pays the future premiums, and eventually collects the death benefit.
Benefits of a Life Settlement
Higher Payout: Life settlements often provide a higher payout compared to surrendering the policy. If you qualify, you will always receive more than the cash surrender value.
Financial Flexibility: The lump sum payment can be used for various needs such as healthcare, retirement, or debt reduction.
Relief from Premiums: Once sold, you no longer need to pay the policy premiums.
What Does Surrendering Your Policy Mean?
Surrendering a life insurance policy means you cancel the policy and receive the cash surrender value from the insurance company. This amount is the policy’s accumulated cash value minus any surrender charges and outstanding loans.
Benefits of Surrendering a Policy
Immediate Cash Access: Provides quick access to the policy’s cash value.
No More Premiums: You are relieved from making further premium payments.
Simple Process: Typically, surrendering a policy involves less paperwork and is a straightforward process.
Comparing Life Settlement vs Surrendering Policy
Choosing between a life settlement and surrendering your policy depends on several factors, including your financial needs, health status, and long-term plans. Here are some key points of comparison:
Payout Amount: Life settlements generally offer a higher payout than the cash surrender value. If maximizing your return is crucial, a life settlement might be the better choice.
Policy Value: The size and type of your policy affect eligibility and the potential payout in a life settlement. Surrendering provides a more predictable amount based on the cash value.
Health Considerations: Life settlements often require an evaluation of your health, as life expectancy impacts the policy’s value to investors. This evaluation is based on existing medical records and does not require a new medical exam. Surrendering your policy doesn’t involve any type of health assessment.
Future Needs: Consider your future financial needs. A life settlement provides a larger lump sum that can be used for significant expenses, while surrendering offers immediate, though typically smaller, cash value.
Premium Payments: Both options relieve you from future premium payments, but a life settlement might offer more immediate financial relief.
Making the Right Choice
Deciding between a life settlement and surrendering your policy requires careful consideration of your current financial situation and future goals. If you’re seeking a higher payout and can navigate the potentially more complex process, a life settlement could be advantageous. On the other hand, if you need quick access to cash and prefer a simpler approach, surrendering your policy might be the right move.
Understanding the nuances of a life settlement vs surrendering policy is essential in making an informed decision. Both options provide viable financial solutions, but they cater to different needs and circumstances. A life settlement is usually the better option, but not everyone will qualify.
For more information on life settlements and how they can benefit you, please give us a call today at 800-727-7654. You can learn if you are likely to qualify for this valuable option in a short 5 to 10 minute phone call.
Term life insurance is a popular choice for many people because it offers substantial coverage at a relatively low cost for a specific period. However, a common question arises: what happens if you outlive your term life insurance policy? Do you get money back if you outlive term life insurance?
The short answer is no, you don’t get your premiums back at the end of a term life insurance policy. Unlike permanent life insurance, which includes a cash value component, term life insurance is designed to provide pure death benefit protection without any savings element. Once the term expires, the coverage ends, and there is no payout or return of premiums.
Understanding Term Life Insurance
Term life insurance provides coverage for a specified period, typically 10, 20, or 30 years. During this term, if the policyholder passes away, the beneficiaries receive the death benefit. If the policyholder outlives the term, the coverage ends, and no benefits are paid out.
The main advantages of term life insurance are its simplicity and affordability. It’s an excellent option for those who need coverage for a specific period, such as the duration of a mortgage, until children are financially independent, or while income replacement is necessary.
What Happens When the Term Ends?
When a term life insurance policy expires, you generally have a few options:
Renew the Policy: Many term policies offer a renewal option, allowing you to extend your coverage. However, this typically comes with significantly higher premiums since you’re older and possibly less healthy.
Convert to Permanent Insurance: Some term policies include a conversion option, which allows you to convert the term policy into a permanent one without undergoing a medical exam. This can be a beneficial option if you still need life insurance coverage and are concerned about qualifying for a new policy due to health reasons.
Let the Policy Expire: If you no longer need life insurance coverage, you can simply let the policy lapse. While you won’t get your premiums back, you’ve had the peace of mind that comes with being insured during the term.
The Life Settlement Option
For those who find themselves outliving their term life insurance but still have a need for some return on their investment, a term life insurance settlement might be an attractive option. A life settlement involves selling your life insurance policy to a third party for a lump sum payment that is more than the cash surrender value (if any) but less than the death benefit.
How Does a Life Settlement Work?
Eligibility: To qualify for a life settlement, policyholders generally need to be over the age of 65 and have a life insurance policy with a death benefit of at least $100,000. Health status can also play a role in determining eligibility and the payout amount.
Evaluation: The life settlement company will evaluate the policyholder’s age, health, and the terms of the policy to determine the value of the policy.
Offer: If the policy is deemed valuable, the company will make an offer. This offer is usually a lump sum payment that is more than the surrender value but less than the policy’s face value.
Transaction: Once the offer is accepted, the ownership of the policy is transferred to the buyer. The buyer continues to pay the premiums and receives the death benefit when the original policyholder passes away.
Pros and Cons of Life Settlements
Pros:
Immediate Cash: Provides immediate access to funds that can be used for medical expenses, retirement, or other financial needs.
Recoup Investment: Allows policyholders to recoup some of the money spent on premiums, which would otherwise be lost if the policy lapsed.
Cons:
Loss of Death Benefit: Beneficiaries will no longer receive the death benefit since the new owner of the policy will.
Tax Implications: The lump sum received from a life settlement may be subject to taxes.
Do You Get Money Back if You Outlive Term Life Insurance? While you won’t get your premiums back if you outlive a term life insurance policy, options like renewing the policy, converting it to permanent insurance, or opting for a life settlement can provide alternative solutions to address your financial needs. A life settlement, in particular, offers a way to unlock some value from your policy, ensuring that your investment in life insurance doesn’t go entirely to waste.
It only takes a short 5 – 10 minute call to find out if your policy is eligible for a life settlement. Please give us a call at 800-727-7654 today to learn if you qualify.
We speak with many long term financial advisers dealing with underperforming universal life insurance. Most remember writing universal life policies in the mid-eighties at 9% or more interest and having no qualms showing an illustration to that effect.
Underperforming Universal Life Policies
Though years and years of low interest rates have bolstered the stock market and the real estate market, insurance policies have largely underperformed the interest rates that were once illustrated comfortably.
What a lot of people don’t realize is that inside of a universal life insurance policy, the cost of insurance per 1000 increases exponentially as we age. The guaranteed cost of insurance rates on most universal life insurance policies do not guarantee that the policy will stay in force until age 100. There are many different approaches to this with respect to guaranteed provisions, target premiums, etc.. No two policies are exactly the same because no two people took them out at the exact same time, from the exact same company and paid the exact same amount during a low interest rate environment.
It’s very possible, in fact probable, that many policy owners who once saw their cash value going up, now see it plateauing or decreasing due to the rising cost of insurance. The scary part is that the less cash you have, the more insurance you have to pay for as the cost per 1000 increases dramatically.
Insurance companies rely heavily on life insurance policies lapsing. The best case scenario from an insurance company’s standpoint would be that you pay premiums for years and years and they never give you any money back and they never pay a death benefit.
Most policies lapse without ever paying a claim. In fact, over 642 billion dollars in face value of life insurance policies lapsed last year.
A Viable Solution – Life Settlements
Life insurance is no longer an all or nothing proposition. Reverse life insurance allows you to get the real hidden value of an underperforming universal life insurance policy in the form of cash today. Reverse life insurance is actually the opposite of life insurance with respect to qualifying. With reverse life insurance, the worse your health and the older you are, the more your life insurance policy is likely to be worth in the secondary market.
The cash surrender value or enhanced cash surrender value offer that you see on your statements for universal life are essentially an offer from your insurance company for your life insurance policy. Your policy may have a hidden value and it is your property to sell in a life settlement versus lapse.
If you’re an adviser, revealing this possibility to your clients might allow you to once again hold your head high, in case they hung on to the illustrations that you generated 35 years ago.
Universal life insurance policies with zero cash value and ready to lapse are often prime candidates for a life settlement. If someone has had any slippage in health, there’s a chance to qualify for something if you are over age 55 or 60.
Financial advisers dealing with underperforming universal life insurance policies now have an option. Not everyone and every policy qualify. Anyone over age 50 is crazy to lapse an underperforming universal life insurance policy without first having it appraised for hidden value.
The insured’s health is the main factor, but there are many factors to consider. Different guaranteed provisions, types of policies, different carriers and their ratings all matter. Each case must be considered on an individual basis.
Insurance companies and financial advisers are being sued for not informing their clients of their ability to possibly get more for their underperforming universal life insurance policy. Please do not allow someone to throw away a universal life insurance policy with no cash value without having it appraised. The hidden value can be life changing.
Most calls we have fielded from CPAs and Accountants over the past 15 years have been around cost basis. Accountants -many for the first time- were trying to calculate the cost basis of a life insurance policy. There was a next to impossible computation to interpolate the cost basis, which relied on cost of insurance information from the insurance company and many insurance companies wouldn’t disclose the information and some didn’t even track it. It became much easier to determine life insurance cost basis in 2017 with the passage of the Tax Cuts and Jobs Act.
Accountants, CPAs Discovering Hidden Value in Life Insurance
Today things are very different, most of the calls we get from Accountants are around assisting or facilitating the sale of their client’s life insurance policy. Many of the CPAs and Accountants are navigating a life settlement for the first time, because their client’s insurance agent or advisor is restrained from mentioning a life settlement, even though it is in their shared client’s best interest.
The Reverse Life Insurance platform digitally and compliantly garners all of your clients insurance information directly from the carrier and gathers all the appropriate medical information inside of HIPPA guidelines. Once the information is mustered, third party Life Expectancy estimates are obtained by licensed buyers utilizing our platform. There is no cost and no obligation to the seller. Accountants and CPAs discovering hidden value in life insurance can help their clients without taking an active part in the process.
Life Settlement Taxation
The Tax Cuts and Jobs Act of 2017 (TCJA) made a big impact on the taxation of life settlements. The law has two provisions favorable to life settlements. One makes the tax treatment to the seller more favorable by changing the treatment of proceeds from a settlement. The other provision is an increase in the estate tax exclusion amount, diminishing the need for a large policy to cover estate taxes.
Prior to the Tax Cuts and Jobs Act of 2017
Currently, the tax treatment of life settlement proceeds is the same as the treatment of funds received from surrendering your policy. Prior to TCJA, the tax treatment of funds received after policy surrender was more favorable than the tax treatment of funds received in a life settlement.
When surrendering a policy, the proceeds were taxed on the amount received minus the total cumulative investment (premiums paid in minus withdrawals and dividends.)
When selling a policy as a life insurance settlement, the basis was reduced by the cumulative cost of insurance (COI) charges. You could not deduct the full premiums paid into the policy and it was usually difficult to obtain a correct COI charge or any explanation for those charges from your insurance company. Now, the premiums paid are the cost basis, regardless of the amount utilized towards the cost of insurance. This is huge, and brings Term Life Insurance policies into play.
Prior to TCJA, the estate tax exemption was $5.49 million for a single taxpayer and $11.2 million for a couple filing jointly. There were many Estate Tax policies sold that have not only underperformed, but they often are no longer necessary. Universal Life and Flexible Premium Life policies with no cash value often have a hidden value as a life settlement. Many people hedged their insurance by purchasing large term insurance policies as the Federal Government discussed the potential estate tax threshold. If the term life insurance policies are convertible, which they typically are, there may very well be a hidden value, dependent upon the insured’s age, current health and policy specifics.
After the Tax Cuts and Jobs Act of 2017
As a result of TCJA, taxation of life settlements changed dramatically.
Tax Basis
Amounts received up to the tax basis are income tax free. Anything in excess of the tax basis (up to the surrender value) is taxed at ordinary income rates. Amounts received in excess of the cash value get favorable capital gains treatment. This applies to both funds received in a life settlement and those received after surrendering a policy.
Whatever your client paid into the life insurance policy minus anything taken out in the form of dividends, cash, or loans is now the tax basis. Money taken out of the policy or any proceeds from a life settlement up to this tax basis should incur no income taxes. For example, if a client paid premiums for 20 years at $3000 per year, the tax basis would be $60,000 regardless of the type of life insurance policy. Any amount received over the tax basis up to the surrender value of their policy will be taxed as ordinary income. Anything in excess of the surrender value is still considered a capital gain.
Estate Tax Exemptions Changes
The amount excludable from estate tax is now $11.2 million per person and $22.4 million per couple. People with large estates used to purchase policies for the sole purpose of paying for estate taxes. Now that the exemption amounts have been raised, many of these policies are no longer necessary. A life settlement is a great option to access the hidden value of an unneeded policy. Someone in this scenario could be able to stop paying premiums and receive cash money now.
Viatical Settlement Taxation
Viatical settlement proceeds are taxed differently than life settlement proceeds, but only if they meet specific requirements. The taxation of the proceeds was not affected by recent tax law changes.
In 1996, the Health Insurance Portability and Accountability Act (HIPAA) was signed into law. This act specified that proceeds received either from a viatical settlement or as accelerated death benefits on a policy in which the insured was chronically or terminally ill would be tax free as long as the policy was purchased by a viatical settlement company who is licensed in the seller’s state. To qualify for this tax treatment, the insured must have less than two years to live. Although most states follow this federal law, some still impose taxes on viatical settlements. As a tax advisor, you need to be prepared to advise your clients of the laws affecting them.
The proceeds from a viatical settlement in which the insured is considered chronically ill are taxed differently. In order for money received by a chronically ill person to be tax free, the proceeds must be used for the costs of long-term care services that are not covered by insurance. Otherwise, benefits not used for long-term care received in excess of an annually-adjusted limit are subject to taxation.
Considering the recent tax law changes, a life settlement may be a better option now than ever before.
Funds received as a result of a life settlement no longer receive unfavorable tax treatment when compared to those received after a policy surrender.
Viatical settlement taxation has remained unchanged and funds received in this type of settlement are in most cases tax-free.
The estate tax exemption has been doubled, so many policies taken out for the sole purpose of paying taxes are no longer needed. These policies can be sold for cash now, eliminating premium payments.
Why Don’t More CPAs and Financial Advisors Mention Life Settlements?
Many accountants and financial advisors often wrongly assume that their client’s insurance agent or advisor has educated them about life settlements and has already helped them to have their policy appraised. Most seniors purchased their policy years ago and are no longer in contact with their original insurance agent. Insurance companies certainly don’t reach out to clients to make them aware of any potential value in a life settlement or discuss how a policy is performing. If no one else is assisting your clients in understanding the value of one of their biggest assets, the duty may fall to you. Accountants and CPAs can help clients with discovering the hidden value in their life insurance policies by telling them about life settlements.
Most Accountants, when asked, simply do not feel qualified to discuss life settlements, have a bad taste in their mouth from something they have heard or just don’t feel that it is their responsibility. Any advisor knowledgeable about life settlements and other reverse life insurance options is more prepared to help their clients discover the hidden value in their life insurance policy, but you don’t have to be an expert to simply tell your client to have a life insurance policy appraised prior to any surrender or lapse.
Life settlements are legal and heavily regulated in most states. Only 5 states, Alabama, Missouri, South Carolina, South Dakota, and Wyoming are without life settlement regulation.
Several states actually have laws in place to protect consumers. In those jurisdictions with disclosure laws, insurance companies must make consumers aware of the possibility of a life settlement as an alternative to a policy lapse or surrender. Agents and advisors have already been sued for neglecting to educate their clients.
Appraisals Necessary for Discovering the True Hidden Value in Life Insurance
If you are selling real estate, a business, or any other valuable asset, you would hopefully have the item evaluated by a qualified appraiser if you could. A life insurance policy is no different. A life insurance policy is an asset and unfortunately, all too often, we hear of someone surrendering a policy and unwittingly throwing away hundreds of thousands of dollars. The fact is, their life insurance policy may be the most or one of the most valuable of your client’s assets, and they are often completely unaware.
Term insurance and policies with zero cash value often qualify as a life settlement. Your client’s life insurance policy may have an exponentially higher hidden value than the obvious cash surrender value offered by the insurance company.
How to Talk to a Client About Life Settlements
When considering a surrender or lapse of an unneeded or too expensive life insurance policy, your client may not even think to ask for your input. If life insurance is not something you discuss regularly, consider adding it to your client checklist. An accountant or advisor can help prevent clients from lapsing or surrendering policies before exploring all of their options.
Your clients may see advertisements about life settlements on television or social media. You should tell them to always get more than one offer, and if they can get a direct offer from a licensed Reverse Life Insurance buyer and save the 30% or more commissions most brokers charge, they will thank you and so will we.
Referrals
Anyone can make a referral to Reverse Life Insurance for a possible life settlement. You do not have to have an insurance license or any licensing for that matter. Should your client qualify and accept and receive their cash offer, you or your designate is eligible for a referral fee in all but a few states. This fee is paid by the licensed buyer above and beyond the sales proceeds your client receives.
With the current and more favorable treatment of life settlement proceeds as well as the diminished need for estate tax policies, it is a great time for your clients to explore the hidden value in their policy before they cancel it. Accountants and CPAs discovering hidden value in life insurance can often make a big difference in the lives of their clients.
Financial Advisors and life settlements often do not mix. Your client, the person or even friend who has trusted your advice in financial matters for years, could sell their life insurance policy for cash. Yet, you allow them to just lapse or surrender it because the Life Insurance company you work for will not allow life settlements. There is a definite conflict here.
If you allow a client to cancel their policy because they cannot afford it without you ever informing them that there is a legal, regulated way to sell their policy to a licensed buyer, what liability do you create? Your client could receive the equivalent of 20 years of paid premiums back to them, tax free, for the TERM life insurance policy that they are lapsing, however you are not even permitted to offer the option. In this case, what can you do?
Reverse Life Insurance has helped thousands of people understand options for selling existing life insurance policies for over 15 years. We continue to help educate people on a daily basis. Nevertheless, there are still many who have never heard of any reverse life insurance options for their policies. As their trusted agent or advisor, you want to help your clients by offering them the best solutions. Whether they are seeking funds for medical treatments or simply want retirement planning advice, they look to you for guidance.
As a Senior Life Insurance Executive, our founder saw firsthand how valuable life insurance can be for families. In contrast, he also saw a darker side of the industry. Insurance carriers often encourage policyowners to lapse/cancel their policies for the meager cash value or nothing at all. However, these policies can often be sold in the secondary market for an exponentially higher amount than cash surrender value. Even policies with zero cash value often have a large hidden value as reverse life insurance.
“My initial exposure to life settlements and the secondary market for life insurance was in the late 1990’s. At the time, I was a Life insurance Executive in Toronto. The international insurance company I represented began terminating agents and management for transacting life settlements. Most were unethically financing the premiums of life insurance for resale. STOLI, or Stranger Originated Life Insurance, became the go to black eye to the secondary insurance market. Broker Dealers and Insurance Companies still reference this, keeping their clients in the dark about all of their options. It’s come full circle. Now is the time for the Insurance Industry to be reconciled” – Reverse Life Insurance Founder, CE Dean FICF
The Secondary Market for insurance is regulated, vibrant, and benefiting the general public the way it should. Life Settlements, Viaticals, Life Insurance Advances as well as other Reverse Life Insurance options now abound. Still, some Broker Dealers and Insurance Companies continue to contractually prohibit their agents and advisors from taking part in the sale of a life insurance policy as a life settlement in the secondary market. To be clear, their actions harm clients, create an almost insurmountable conflict and therein lies the problem.
Financial Advisors Now Have Access to Compliant Life Settlement Platform
Our Reverse Life Insurance platform allows clients of financial advisors to access hidden value in their policies as life settlements. In addition, it allows you to be hands-off during the transaction. That means that you don’t have to do anything beyond mentioning to your clients the possibility of selling their policy. After connecting with your client, we will discuss the qualification process with them directly. Everything we do is automated. We collect signatures for HIPAA and disclosure documents electronically. We order medical records and insurance policy documents and illustrations, securely storing them. After reviewing this medical and policy information, direct buyers will make an offer to your client based on their appraisal. Your client is welcome to discuss everything with you as their trusted advisor. However, you do not have to take part in the process.
Less than 1% of those eligible for reverse life insurance ever take advantage of the life settlement option. People are simply unaware. Our direct licensed buyers pay a referral fee when a policy qualifies and is sold. If being held captive by your employer and unable to mention life settlements, know that anyone can make the referral. It is perfectly legal to pay a referral fee to someone or an entity that is not licensed if an employment contract has restrictions. Financial advisors and life settlements need to come together.
Financial Advisors Have Fiduciary Duty When It Comes to Life Settlements
Reverse life insurance options are valuable financial tools that can help your client retain value in a policy that they may otherwise lapse or surrender. Last year, over $642 billion dollars in face value of life insurance policies lapsed. Many of these policies could have and should have been sold instead. This would allow the policy owners to recoup some, all, or even more than the money actually paid in premiums.
Policy owners sold less than 1% of eligible policies last year. That is roughly 3,000 policies amounting to $4 billion in face value. These fortunate policy owners received over $750 million in cash payouts. The face value sold only represents less than 1% of the amount lapsed.
A life settlement is the sale of an existing life insurance policy to an investor fund for cash. The new owner takes over ownership and beneficiary rights to the policy and all responsibility for future premium payments. Life settlements and other types of reverse life insurance are legal and heavily regulated. In order to purchase policies, buyers must be licensed.
There are only five states that do not regulate life settlements; Alabama, Missouri, South Carolina, South Dakota, and Wyoming. Washington D.C. is also another unregulated jurisdiction.
What can you do when you have your client’s best interests at heart, but your employer has your hands tied? Beyond a moral obligation to consumers, are there legal reasons why you must consider advising a client about the possibility of selling their policy in the secondary market? Life settlements provide much more cash for the policyholder than a surrender or lapse of their policy. Therefore, not presenting reverse life insurance as an option could constitute a breach of fiduciary duty.
Advisors who neglect to tell clients about their reverse life insurance settlement options are being sued.
Advisors should be aware of the justifiable legal actions that policy owners have brought against carriers and advisors. The crime? Failing to disclose life settlement options. As precedent-setting legal actions against the concealment of information on life settlements come forth, more advisors educate their clients. It is both a smart business offering and protection against potential legal and financial liability.
In 2011, life insurance policyholders filed a lawsuit against John Hancock for violating Washington State’s Consumer Protection Act. Hancock’s appeal for summary judgment alleging the policyowner should have known about the secondary market on their own was denied. As a result, John Hancock settled the case prior to trial.1
In 2014, the owners of a life insurance policy filed a class-action lawsuit against their insurance company and advisor. This was in a state that doesn’t even have the disclosure mandate. The policy owner’s suit cited the “common and systemic practice” of “failing to inform and/or concealing from its insureds the option of a life settlement in connection with their life insurance policies.” The lawsuit sought damages based on the defendant “purposely omitting this information because it knows that other options, such as surrendering the policy (in whole or in part) or letting it lapse, will generate greater profits to the insurance company than a life settlement would.” The court confirmed that failure to disclose the life settlements option could result in financial harm to policyholders and beneficiaries. The case settled out of court in 2016.2
In 2016, a similar lawsuit was filed by the owners of a life insurance policy. The claims against the defendant were that they engaged in a “pervasive practice in the life insurance industry.” The defendant “instructs its own agents as well as independent agents that transact insurance to omit or conceal the option of a life settlement from its insureds.” The claim seeks compensatory damages and cites violations of the California Consumer Legal Remedies Act, financial abuse of an elder, and unlawful, unfair, and fraudulent business practices.3
The SEC approved Regulation Best Interest (Regulation BI) on June 5, 2019.4 The goal of this regulation was to impose higher standard of care rules for brokers, thereby protecting consumer interests.
Reverse Life Insurance Settlements Impacted by Regulation BI
After Regulation BI passed, the National Association of Insurance Commissioners created their own best interest standard. Many states adopted their own standards for insurance agents, some even more strict than the SEC’s policy. This regulation shows that that the government wants to protect consumers from conflicts of interest related to any financial services.
Of course the insurance company would prefer that policy owners surrender or lapse their unwanted or unaffordable policy. You have a responsibility to act in the best interest of your client though. Reverse life insurance almost always generates more cash than the surrender of a policy. Clients would almost certainly choose this option over a lapse or surrendering for a meager cash value.
Withholding information about life settlements that could potentially benefit your clients violates fiduciary responsibility and the “best interest standard” of Regulation BI.
Reverse life insurance is a legal, regulated transaction that can provide much-needed cash flow for seniors. It’s a viable financial strategy and is usually the most beneficial approach when someone longer needs or wants their life insurance.
Scenarios where a reverse life insurance settlement may benefit your clients:
They are considering lapsing or surrendering their policy.
He or she suffers from a chronic or terminal illness.
The client needs, but cannot afford, home healthcare or long-term care services.
They can no longer afford the premium payments on their existing policy.
Your client has altered their estate plan, is selling a business, or is retiring.
He or she needs a smaller policy or no longer needs life insurance.
Life Insurance Laws
Georgia Passes Law to Protect Agents and Financial Advisors Who Mention Life Settlements
Georgia is the first state to enact a law to specifically protect agents. Gov. Nathan Deal signed Georgia H.B. 193 into law on April 26, 2016. This law prohibits life insurance companies from punishing or terminating agents who inform their clients about life settlement options. Financial advisors now avoid negative action when mentioning this alternative to lapsing or surrendering a policy.
“The Life Insurance Consumer Disclosure Act” specifically states that: “an insurer shall not terminate or otherwise penalize an agent for apprising a policy owner of alternatives to the lapse or surrender of an individual life insurance policy”
Multiple States Have Enacted Laws to Protect Consumers
Georgia is currently the only state with a law protecting life insurance agents and financial advisors who mention life settlements. The following six states have mandatory disclosure laws to protect consumers though. These laws stipulate that life insurance companies must inform policyholders considering a lapse or surrender of possible life settlement options.
Kentucky
Maine
New Hampshire
Oregon
Washington
Wisconsin
A financial advisor equipped with thorough knowledge of reverse life insurance options can better help clients reach their financial goals. Advisors who fail to mention these options may be in direct violation of their fiduciary duty. Make your clients aware of alternatives to a lapse or surrender. It is important to do your homework and educate your clients about the best options available to them.
Financial Advisors and Life Settlements
Reverse life insurance is a portfolio of solutions that enable policyowners to sell existing life insurance policies for cash. They many simply no longer be able to afford premiums, no longer need insurance, or need funds for medical care. In any case, you can offer them solutions beyond surrendering or lapsing their policy. Be their advocate (and likely hero) by offering them a better option.
Real Life Examples:
Life Settlement
A widow in her early 70s who no longer needed her life insurance policy, but was in need of cash, contacted us to find out if her policy had any value as reverse life insurance.
Her $0 cash value $145,000 Universal Life policy got a cash offer of nearly 30%. This life settlement provided some much-needed funds to supplement her pension.
Viatical Settlement
A 67 year old man with significant medical issues was facing financial distress. He thought about lapsing his policy as the premium cost was too much of a burden. His agent suggested that he look into reverse life insurance.
He was able to sell his zero cash value $200,000 term life insurance policy for over $100,000, providing some desperately needed financial relief and relieving him of the $500 monthly premium payments.
The money he received through this viatical settlement allowed him to pay for treatment that his medical insurance didn’t fully cover.
Medicaid Life Settlement
A Medicaid life settlement allows policyowners to convert their life insurance policy into a plan to cover the cost of assisted living directly each month. Rather than surrendering or lapsing their policy in order to qualify for Medicaid, they are able to retain more of their policy’s value. This type of settlement is considered a qualified spend down of the policy.
An 83 year old woman’s family was faced with the necessity of selling off her assets and surrendering her $100,000 life insurance policy in order for her to qualify for Medicaid as she needed to move into an assisted living facility. Luckily, they contacted us about a Medicaid Life Settlement first. The policy was able to be converted into funds in an account to pay directly for her assisted living costs. Not only did these funds provide some relief, but because the settlement is a qualified spend down, she was able to qualify for Medicaid assistance.
Long Term Care Benefit Plan
A daughter called in to find out about funding options for her father who needed long term care. The family was paying out of pocket, but their funds were drying up and they were looking for a solution to help maintain his current standard of care.
The man owned several small life insurance policies. Two of the policies, a $50,000 policy with a loan against it, and a $25,000 policy provided an approximately $30,000 payout towards the cost of his care over the next 3 years.
This payout was set up to be paid directly to his long term care facility each month. The family was happy to be able to keep him in his preferred facility. In addition to the relief of having funds to pay for his care, they no longer needed to make premium payments on the insurance policies.
Retain-a-portion Reverse Life Insurance
A 75 yr old man owned a $500,000 Universal Life insurance policy. While he had heard about life settlements and was interested in seeing what his policy was worth, he wanted to retain some life insurance benefit for his family.
After evaluating his policy, our direct buyer was able to offer him a hybrid offer of $50,000 cash in addition to a retained death benefit of $100,000 for his beneficiaries. He was no longer responsible for premium payments and had some additional cash for living expenses.
Life Insurance Advance
A man was facing a terminal diagnosis at age 72. He wanted desperately to try some alternative treatments to prolong his life, but they weren’t covered by his health insurance policy.
His financial advisor had heard of life settlements and suggested that he contact us to see if the man’s $500,000 policy had any value as reverse life insurance.
Rather than selling the policy, he was able to obtain a life insurance advance loan of $175,000. He received funds to pay for the treatment he desired and he was able to maintain ownership and beneficiary rights to his life insurance policy.
When he passes away, his beneficiaries will receive the death benefit minus the total of the lump sum cash advance, premiums, fees, and interest. If he survives much longer than expected, he is under no obligation to make future premium payments or pay back the advance if there is not enough benefit left in his policy to cover it.
Testimonials
“Seldom do I write a testimonial. Reverselifeinsurance.com exceeded my expectations. My experience was stress-free. They informed throughout the process and the standard of professionalism was outstanding. I would absolutely recommend Reverselifeinsurance.com without hesitation.”
E.C.
“ReverseLifeInsurance.com connected me with a direct buyer who purchased my life insurance policy. The Buyer was excellent to work with through the entire transaction. They got me the cash I needed just 2 days before Christmas.”
Jim
“I really didn’t have the extra money to pay for the therapy I felt was best for me. I tried to get a life insurance cash advance, but they (the insurance company) said I wasn’t sick enough. Reverselifeinsurance.com’s direct buyer gave me $95,000 for my $250,000 policy! I just finished my 13th treatment. I told them I would recommend them to anyone, so now I am!”
J.M.
Our reverse life insurance platform is consumer oriented and connects policyholders with companies that buy life insurance policies direct. We created it to help people sell their insurance policy direct to licensed buyers, when their advisors are not permitted to assist them.
Advisors utilize our platform because allows you to stay out of the process. We handle everything, from the initial client contact to secure and compliant gathering of documents directly from the insurance carrier and physicians.
Once your client receives their sales proceeds, a referral fee is paid to whomever makes the referral. You don’t have to be licensed, just know someone who is lapsing their coverage and telling them to call us is all it takes
There are no more excuses for allowing your clients to miss out on the hidden value in their life insurance. Financial Advisors who make their clients aware of the options life settlements provide are acting in their best interest. Call us or have your clients call directly. Every case and every situation is different.
Reverse Life Insurance pays you to live. Don’t leave money on the table.
3 Joseph v. Kaye, et al., Case No. SC125276 (Cal. Super. Ct.)
4 SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 240 [Release No. 34–86031; File No. S7–07–18] RIN 3235–AM35 Regulation Best Interest: The Broker-Dealer Standard of Conduct
Long term care defines a range of services that refer to people with differing personal care needs. It isn’t something that can be defined as a single type of service. As a purely medical service long term care is a form of healthcare that delivers assistance to people with chronic illness or disability. However, for others it can also be a type of care that assists people who cannot perform basic tasks essential to normal living. These are known as Activities of Daily Living (ADLs) such as eating, dressing, bathing, getting out of bed, using the toilet and so forth. Then, for those who seek to continue living independently despite slipping health, long term care can even include assisting with Instrumental ADLs (IADLs) such as cooking, shopping, managing money, taking medications and other activities a fully functional person normally performs. Understanding the cost of long term care is crucially important for both Seniors and those close to retirement.
Reverse Life Insurance is sometimes referred to as Life Settlements, but in reality Reverse Life Insurance is much, much more. While Life Settlements allow certain qualified individuals to sell their life insurance policy in the secondary market for life insurance, Reverse Life Insurance also facilitates solutions that allow qualified Policy Owners to receive a cash advance against their life insurance policy (Life Insurance Advance), convert their life insurance policy into an FDIC-secured benefit account to pay for long-term care (Medicaid Life Settlement), or sell their life insurance to pay for treatments and expenses from chronic or terminal illnesses (Viatical Settlements). Reverse Life Insurance even helps qualified Policy Owners sell their Term Life Insurance policies with no cash value (Term Life Insurance Settlement).
Finally, after many years, the life insurance industry in Florida is being reined in. Many people who own and pay premiums for life insurance every month assume that, at some point, they may have to let their life insurance lapse. Some find they can no longer pay the premiums, which in the case of term insurance, skyrockets with advancing age. Others simply feel they no longer need a large life insurance policy because their children are grown. They’d prefer to spend their money for other more pressing needs—perhaps for healthcare, for example.
Understanding your options as you consider how to sell your life insurance policy can be confusing. However, the most important first steps you can take in working through a life insurance policy settlement are qualifying and valuing your policy before you do anything. “Qualifying” is a matter of determining if your health, age and policy are likely to make you eligible for a life settlement. “Valuing” is the process of determining how much your policy is worth in the marketplace and, therefore, how much cash you can expect from the life settlement process.
