Life Settlement

A “Life Settlement” involves the sale of an existing Life Insurance Policy to provide a cash settlement that ideally results in an amount of money that is in excess of the current cash “surrender value” of the policy being “settled”.

A Life Settlement can provide meaningful wealth and estate planning options, and is often entered into for the purpose of funding other more cost effective or preferred financial or insurance products possibly not available at the time of the purchase of the original policy that is being settled. This could mean, for one who is insurable, buying a newer less expensive policy, or estate planning Second to Die policy, or, for one merely needing to free up cash to have available resources for immediate income or lifestyle needs, or other personal investment purposes.

Life Settlements are also ideal in business scenarios where one or more parties to a life insurance funded Buy/Sell Agreement is retiring and no longer has a business need for the coverage, but does have a need for added retirement resources that the Life Settlement can provide (i.e. cash for the sale of the policy, that often well exceeds the existing policies cash accumulations).

Resources are often needed for a multitude of more immediate or longer term purposes than those for which the original life insurance policy may have been purchased, and a Life Settlement can free up these much needed resources for newer or revised needs and purposes.

Does Your Policy Meet These Typical Qualifications? Our experience has found that the following criteria are required for a successful Life Settlement transaction to go through in the most beneficial manner for all:

* 60+ year old male or 70+ year old female
* $150,000+ unneeded Convertible Term, UL, Whole Life, or Survivorship policy
* Existing policy in force for at least 2 years
* Annual premiums less than 10% of death benefit
* Cash surrender value less than 40% of death benefit
* Change in medical condition since issuance

Additional Criteria:

Bringing about a successful Life Settlement sale, in addition to factoring in the above items, involves balancing these 4 factors: the policies face amount (death benefit), cash value, premiums AND the persons health “life expectancy“. Since a given persons “life expectancy” (“LE”) is uncertain, it is a combination of these 4 factors that more often than not determines whether or not a worthwhile sale/purchase can even occur. In estimating LE, using all available medical history of the insured, a LE of less than 15 years is ideal (for those closer to 70 and far less for those over age 75) UNLESS the premiums of the policy being sold are relatively low, in which case a LE of greater than 15 years may work.

Tax Considerations:

No taxes on principal or basis in the sold policy.
Ordinary income taxes on the net cash value (meaning, cash value less basis).
Capital gains taxes on any excess paid to the seller.

For more information, or to review a specific case, contact us now: 1.800.482.5347

Disclaimer: The material discussed herein is meant for general illustration or informational purposes only and is not to be construed as financial advice. Although the information has been gathered from sources believed to be reliable, it is not guaranteed. Please note that individual situations can vary; therefore, the information contained herein should be relied upon only when coordinated with individual professional advice. We are not licensed for and therefore do not provide tax or legal advice.

About the Author: Paul M. League, QFP — QUALIFIED FINANCIAL PLANNER, is the Founding Principal of League Financial & Insurance Services (, which is a privately held company, established in 1984, and located in Palm Desert, CA. Paul and his company specialize in assisting clients to create, expand & preserve assets “…in a league of our own.” Contact Information: Paul M. League, P.O. Box 11800, Palm Desert, CA 92255-1800; 800.482.5347; © Paul M. League. All rights reserved.

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