A Life Settlement is a financial transaction that enables qualified life insurance policy owners to receive a cash advance on their life insurance coverage by selling it to a state licensed financial institution called a life settlement provider.

The sale of an in-force life insurance policy is similar to the sale of a home or car - all rights, title, and beneficial interest in the life insurance policy are transferred to the buyer who then becomes responsible for all future premium payments. The price paid for the life insurance policy represents the net present value of the policy which is discounted from the face amount and calculated by considering the future premium expenses, health prognosis of the insured, as well as other risk factors.

Why Consider a Life Settlement Option?

If a life insurance policy is no longer needed, no longer wanted, or no longer affordable it might be a great time to sell. Your life insurance policy might be worth more than its cash surrender value. Don’t lapse or surrender your life insurance policy until you understand if it’s worth more.

Possible reasons for selling a life insurance policy:

  • Life insurance premiums are no longer affordable
  • The need to replace lost income in case of death of the insured no longer exists
  • The need for funds to pay estate taxes no longer applies
  • There is a need for resources to pay for health expenses and long term care
  • A term policy may be reaching the end of the coverage period
  • Funds are wanted to improve a retirement lifestyle

Life Insurance Policy Considerations

  • The life insurance policy must have a face value of $100,000 or more.
  • The life insurance policy must be transferable.
  • All types of life insurance policies MAY qualify if the sale is allowed by the life insurance carrier's original contract (contract language for group policies must be reviewed).
  • Non-convertible term life insurance policies can be sold under limited circumstances, qualification will depend on the insured's life expectancy vs. the remaining premium schedule. If the premium schedule shows significant annual increases, the insured would likely need to be diagnosed with a terminal condition.

Health Status of the Insured

  • The insured must have health conditions that limit life expectancy to under 20 years.
  • If the insured is under age 65, life threatening health conditions or a terminal diagnosis would be required.
  • If the insured is age 65-74, serious health impairments would be needed in order to qualify.
  • If the insured is age 75-79, chronic health conditions would likely be needed in order to qualify.
  • If the insured is age 80+, qualification is likely but would depend on the future premium costs of the policy.

Are Life Settlement Proceeds Taxable?

  • Proceeds of the sale of your life insurance policy may be taxable under federal and/or state income tax law
  • The sale may affect your right to receive Medicaid or other government benefits
  • Proceeds could be subject to claims and creditors

Eligibility Requirements

The eligibility requirements for a viatical settlement or life settlement are based on two criteria:

  • The Life Insurance Policy
  • The Insured's Life Expectancy