Life Settlements

C3 Financial Partners

Settling a life insurance policy, also known as a “life settlement,” means selling the policy to a third party, often for a cash payment that’s greater than the policy’s cash surrender value but less than its death benefit.  Here are some common reasons why people choose this option:

  1. Immediate Cash Needs: Financial needs may change, especially in retirement. Selling the policy can help pay for healthcare, housing, or other urgent expenses that arise later in life.
  2. Unnecessary Coverage: As financial responsibilities shift, some may find that they no longer need the death benefit originally intended for dependents. In this case, settling allows them to make use of an asset they no longer require.
  3. Cost of Premiums: Premiums can become increasingly burdensome over time, particularly on whole life policies with higher costs. Selling the policy eliminates the need to pay ongoing premiums.
  4. Better Investment Alternatives: If the cash from selling the policy can be invested or used in a way that provides more immediate value, it might make more sense than holding onto the policy.
  5. Estate Planning Adjustments: If an estate plan changes, or if there are no longer beneficiaries who would benefit significantly from the death benefit, a policyholder might settle the policy to make other plans for their assets.

Life settlements are typically aimed at older adults, usually those over 65, and policies with higher death benefits tend to attract more interest from buyers. This can be an appealing option if the life insurance policy has turned into an underutilized asset that can be sold for a practical benefit.

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.

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