10 Most Important Life Settlement Tips You Need to Know in 2020
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Many people are unfamiliar with how Life Settlements work which can put them at a disadvantage when selling a life insurance policy. Before pursuing the option to sell to the secondary market, consider our list of the 10 most important Life Settlement tips you need to know in 2020.
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- A Life Settlement is not a Viatical Settlement.
- There are Brokers & Providers to Consider.
- Health Status Matters.
- Policy Type Matters.
- Life Settlements are Not for Everyone.
- Accelerated Death Benefits may Replace a Life Settlement Option.
- Your Life Insurance Policy may be worth Nothing.
- Be sure the Provider and/or Broker are licensed in your state.
- Loop in a Tax Professional and/or Financial Advisor.
- Take your Time, Don’t take the first Offer.
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1. A Life Settlement is not a Viatical Settlement.
You should know that a Life Settlement is not a Viatical Settlement. The two are essentially the same thing: selling a life insurance policy to an Investor for cash (usually more than what the life insurance company will offer). However, the criteria for each follow different qualifications. For example, a Viatical Settlement is for a person with an active, life insurance policy who has been declared by a doctor to have a critical/chronic illness regardless of age. Whereas, a Life Settlement has an age restriction above 65 years old regardless of health status. Know the difference between the two and where you stand before selling your policy! For a simple guide, check our Basics of Life Settlements Guide.
2. There are Brokers & Providers to Consider.
Life Settlement Providers are individuals or a group of Investors who ultimately end up purchasing the life insurance policy and a Broker works on behalf of the seller and mediates between multiple buyers for a fee. There are pros and cons to both options when considering a Life Settlement. For a simple visual, you can review the Pro’s and Con’s of Life Settlements.
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3. Health Status Matters.
Life Settlements are heavily based on Life Expectancy, just like Life Insurance and Annuities. That doesn’t mean health seniors are disqualified as you will see. But poor health doesn’t just benefit the Investor. Normally, if someone has a shorter life expectancy, this may increase the cash offer. This is just one key driver of Life Settlement qualifications the offer being the policy type.
4. Policy Type Matters.
As mentioned, healthy seniors are not disqualified from a Life Settlement. Many times, the sale of a life insurance policy, can be driven by the policy type and characteristics of the contract. Investors don’t just look at the Death Benefit amount (ie: Face Value) in which the minimum must be at least $150k. They look at conversion windows of opportunities regardless of cash value. Eligible Life Settlement policies include Term, Whole and Universal Life Insurance but it’s not for everyone.
5. Life Settlements are Not for Everyone.
It may not make sense to sell a life insurance policy if, for example, the tax implications don’t make sense (ask a Tax Pro) or it impacts Medicaid/Medicare. Some people may want to continue paying for the policy (if they can afford it) in order to keep in the family. Other may want to 1035 exchange into an Annuity or Long Term Care Insurance. Some policy may also contain Accelerated Death Benefits.
6. Accelerated Death Benefits may Replace a Life Settlement Option.
A Life Insurance policy that contains Accelerated Death Benefits (ADB) rider provides cash assistance in time of a critical illness which comes directly from the Life Insurance company as a loan against the policy’s death benefit. However, you may be able to sell the remaining policy or leftover policy to an Investor for additional cash.
7. Your Life Insurance Policy may be worth Nothing.
The harsh reality is that your policy may be worth nothing to a Provider. Typically, if a policy is under $150k in death benefit with no conversion option, this may not qualify. If the policy expires too early without a whole life option, this too may not qualify. If the cash value exceeds the Investors Internal Rate of Return (IRR) this too may not qualify. It never hurts to get a Free Appraisal to determine if you qualify for a Life Settlement.
8. Be sure the Provider and/or Broker are licensed in your state.
Be sure you are talking with a state-licensed and insured, Life/Viatical Settlement Provider or Broker for your particular state. Legitimate companies should provide you with proof of active, state licensure upfront. Always ask first!
9. Loop in a Tax Professional and/or Financial Advisor.
Wise counsel in important financial matters is always a good idea. Consider talking with your Tax Pro (CPA) or Financial Advisor (FA) about how a Life Settlement may affect your unique situation in regards to proceeds, Medicare, creditors, investing and life planning. Sometimes connecting a Tax or Financial Professional with a Provider or Broker can help answer unknown questions for them to streamline the suitability process. Meaning, is this a Life Settlement a good option for the client? Never feel like you need to be in a rush.
10. Take your Time, Don’t take the first Offer.
Sometimes, time can be for us or against us but whatever your situation, take the extra time to make a wise decision. If you think a Life Settlement may be a good option for you, make sure you are getting the highest cash offer for your life insurance policy.
HOW WE EARN MONEY
Bridge is a licensed, Life Settlement Broker. We only get paid a commission if we can find you the best offer to sell your life insurance policy. We work with all the top providers to help save you time, money, and energy!
- FL225 – Health & life (including annuities & variable contracts) Study Manual Florida 32nd Edition – 2017
- offical social security
- US Medicare Wiki
- Medicare Wiki
- Medigap Wiki
- Medicare Advanatage Wiki
- CMS Wiki
- medicare interactive
Brandon Selfors is the chief executive officer of Bridge Insurance Group, LLC, a licensed life, health, annuity & life settlement brokerage. He holds a bachelor’s degree in Entrepreneurship from the University of South Florida.
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