When most people purchase life insurance, they view it as a long-term safety net – a way to ensure financial security for their loved ones after they’re gone. But for affluent individuals and families, life insurance can offer more than just peace of mind. It can also be an integral part of their financial, estate, and business planning, designed to provide liquidity when needed to cover potential liabilities.
Sometimes, those needs change; and the policies in place, and the liquidity they will one day provide, are no longer required for the current planning. One way to potentially unlock significant value from an existing policy and convert it into liquidity that can be used now, rather than later, is a life settlement.
At C3 Financial Partners, we collaborate with clients and their advisors to navigate the world of life settlements, helping to both create and execute a plan that aims to support their current planning objectives.
What is a Life Settlement?
A life settlement is the sale of an existing life insurance policy to a third party for a lump sum of cash. The buyer assumes the responsibility for paying the policy’s premiums and collects the death benefit upon the insured’s passing. For policyholders who no longer need or want their life insurance, or who find the premiums burdensome, a life settlement can be a compelling alternative to lapsing the policy or surrendering it to the insurance company.
Why Consider a Life Settlement?
For affluent families, a life settlement can serve as a strategic financial planning tool. Here are some scenarios where life settlements may be particularly beneficial:
- Policy is No Longer Needed: Perhaps your financial situation has changed, and the original purpose for the policy no longer applies. For example, your estate planning needs may have shifted due to changes in tax laws or family dynamics.
- Premiums Have Become Unsustainable: Even for affluent families, paying premiums on a large policy can become a financial strain, especially as interest rates change and as retirement approaches or priorities change.
- Alternative Investment Opportunities: The liquidity from a life settlement can be redirected into other ventures or investments that align with your current financial goals.
- Rebalancing Estate Plans: For families with complex estate plans, liquidating an underperforming policy through a life settlement can free up resources to enhance other areas of planning.
How Does a Life Settlement Work?
The process begins with an evaluation of your life insurance policy’s value. Factors like your age, health, policy type, and death benefit all influence the settlement amount. If you decide to move forward, the transaction typically follows these steps:
- Policy Review: A professional appraises your policy to determine its market value.
- Offer Process: Interested buyers submit bids for your policy in an auction process.
- Sale Completion: Once you accept an offer, the sale is finalized, and you receive the agreed-upon payment.
- Buyer Assumes Responsibility: The buyer takes over premium payments and becomes the policy’s beneficiary.
As a Valmark Financial Group member firm, C3 Financial Partners has access to Valmark’s proprietary life settlement platform. This means our clients’ policies will be part of a competitive auction process that helps obtain competitive market value for a life insurance policy that is no longer needed or wanted. By connecting to Valmark’s network of the majority of leading life settlement providers, the risk of a single provider making a low offer for your policy can be mitigated.
Real-Life Examples
We are constantly surprised at how unfamiliar affluent families, businesses, and their advisors are with the concept of life settlements and how they can be used to help provide liquidity. Here are three cases we at C3 Financial Partners recently worked on that demonstrate the many ways life settlement can help individuals, families, and businesses.
- A bank contacted us as a company they had made a loan to had declared bankruptcy and only had one asset – life insurance policies on the owners. We worked with all the parties, convinced the owners to release medical information to facilitate a life settlement process, and obtained a sum large enough to pay back the bank and leave cash for other creditors.
- The lawyer for a 90-year-old client reached out to us about what to do with an existing policy that had less than $18,000 in cash value and which the client refused to continue to fund. Through a life settlement process, we were able to arrange a price of over $1 million for the policy.
- We were retained by a company that had an existing policy on a former company President that they no longer needed or wanted. The payment the company received from the life settlement process was not only greater than the sum of all the premium payments the company had made for the policy over ten years, but there was enough cash beyond that to purchase a policy on the current company president.
Is a Life Settlement Right for You?
Life settlements aren’t for everyone, but they can be a valuable option under the right circumstances. Here are a few key questions to consider:
- Do you still need the policy for its original purpose? If the answer is no, a life settlement might be worth exploring.
- Can you afford the premiums long-term? If premiums are becoming a burden, selling the policy could relieve financial stress.
- Could the cash be put to better use? For affluent families, liquidity often creates opportunities to enhance wealth, whether through investments, business ventures, or other strategic initiatives.
- Does your policy have hidden value? Many policyholders are unaware of the potential market value of their life insurance.
Work with Experts Who Understand Your Needs
Navigating the world of life settlements requires expertise and a deep understanding of affluent family dynamics. Our firm specializes in serving affluent individuals and families, providing tailored advice to help ensure you get the most value from your financial decisions. We’ll guide you and/or your client through every step of the life settlement process, from evaluating the policy to maximizing the offer received.
Next Steps
Life insurance is more than just a safety net – it’s a versatile financial asset. With the right strategies, including life settlements, you can turn your policy into a powerful tool for achieving your goals and securing your legacy.
If you’re considering a life settlement or want to explore how it may fit into your broader financial plan, contact us to schedule a consultation.
At C3 Financial Partners, we look forward to helping our clients gain clarity in their estate planning goals and objectives, confidence that they are making the right decisions, and providing coordination with their other advisors to create and implement the right plan.
Examples are for illustrative purposes only individual results may vary. In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller’s death. A policy owner should consider the continued need for coverage, and, if the policy owner plans to replace the existing policy with another policy, the policy owner should consider the availability, adequacy and cost of comparable coverage. Policy owners considering the need for cash should consider other less costly alternatives to a life settlement. When an individual decides to sell their policy, they must provide complete access to their medical history, and other personal information, that may affect their life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information to the buyer or servicing agent at a later date. A life settlement may affect the insured’s ability to obtain insurance in the future and the seller’s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received from a life settlement with their tax advisor. A life settlement transaction may require an extended period of time to complete. Due to complexity of the transaction, fees and costs incurred with the life settlement transaction may be substantially higher than other securities. Once the policy is transferred, the policy owner has no control over subsequent transfers. Valmark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. Valmark Securities supervises all life settlements like a security transaction.
Securities offered through Valmark Securities, Inc. member FINRA, SIPC. Investment advisory products and services offered through Valmark Advisers, Inc., an SEC Registered Investment Advisor. Representatives may transact business, which includes offering products and services and/or responding to inquiries, only in state(s) in which they are properly registered and/or licensed. C3 Financial Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
