LISA

Frequently Asked Questions

What is a Life Settlement?

A Life Settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. The industry generally uses the term “Viactical Settlement” to refer to a transaction involving a terminally or chronically ill insured and a “Life Settlement” to refer to a transaction involving an insured who is not terminally or chronically ill, generally over the age of sixty-five (65). However, as used in the laws and regulations of each state, these terms are not consistently used in this manner. For example, some states use the term “Viatical Settlements” to refer to the sale of all life insurance policies, regardless of whether the insured in terminally or chronically ill or not. And at least one state uses the term “Life Settlements” to refer to all transactions, including ones in which the insured is terminally or chronically ill.

Does my state regulate Life Settlements?

Life Settlements are regulated by state Insurance Departments. Some states have enacted statutes addressing the sale of life insurance policies insuring non-terminally or chronically ill individuals, some only laws that only regulate the sale of life insurance policies insuring terminally or chronically ill individuals while others do not regulate the transaction at all. Of those states that regulate the transaction, most require Life Settlement Brokers (facilitator of the transaction) and Life Settlement Providers (purchaser of the policy) to be licensed. Please click here for detailed state by state information.

How much money will I get if I sell my life insurance policy?

The value of a life insurance policy is determined by a number of factors, including, but not limited to, the age and medical condition of the insured, type of insurance policy, rating of the issuing insurance company and amount of premium payments to keep the life insurance policy in force.

What types of life insurance policies can be sold?

Most types of life insurance policies can qualify, however, the most common are Universal Life, Whole Life, and convertible Term Life.

After I sell my policy, are there any restrictions on how I can use the money?

No, there are no restrictions on use of the funds – the money is yours to spend as you like.

Are the proceeds of a Viatical/Life Settlement taxable?

The proceeds are tax-free up to the amount you have paid in premiums during the life of the policy. Whether or not and how the balance of the proceeds will be taxed depends on your specific situation. Please consult your tax advisor for additional information.

What are some of the reasons why I might consider the sale of my policy?

The policy is no longer needed or wanted

To pay for healthcare costs

Premium payments have become unaffordable

Considering lapse or surrender of the policy

Change in estate planning needs

What happens to the policy after I sell it?

All rights and obligations of the policy are transferred to the new owner. You will no longer be responsible for making premium payments on the policy, the new owner will. The new owner will name a new beneficiary of the policy who will collect the proceeds upon the insured’s passing.