Life settlement companies are specialized brokers that focus on purchasing life insurance policies from people who don't want to wait for its maturity. Often, the buying price is based on the policy's surrender value, not the death benefit.
Most policy owners that go for this setup are 65 years old and older. Some reasons for selling their policy include wanting to purchase another life insurance policy or no longer being able to afford the payments for the premium.
To understand the role of life settlement companies, you need to learn how they work. Here are some things to know:
1. Your Life Insurance is an Asset
Similar to other forms of property like your home and car, your life insurance policy is an asset that you can sell to settlement companies and transfer ownership to them. As mentioned above, there are various reasons why people want to sell their policy. The bottom line is that their current setup is no longer sufficient for their retirement needs.
When you contact a credible life settlement company like QLS, it's implied that you're willing to get less than the policy's face value or death benefit. However, the cash payment is always higher than its surrender equivalent.
After transferring ownership of the life insurance policy, you, as the policy owner, would receive a cash settlement while the purchaser assumes future premium payments. The investor, on the other hand, would need to wait some time to reap their profit from the arrangement because they'll be receiving the death benefits of the insured upon their passing.
2. There are Requirements for Eligibility
The reason why life settlement companies have thrived is that most Americans are discovering that insurance benefits that were once sufficient when they bought it are no longer enough to sustain their current and future needs. Economic factors like inflation and the global market are responsible for the diminishing value of their policies.
Nonetheless, not everyone is eligible for a life settlement. Typically, you have to be 65 years old or older. The face value of your policy must also be between the range of 50,000 USD and 250,000.
Moreover, there are different arrangements for people who are healthy and those with terminal or chronic diseases. If you're living with diabetes or cancer, a viatical settlement is made specifically for you.
A viatical settlement is different from a life settlement because the insured isn't expected to survive for a long time. This means that the company may be able to get the death benefits of the policy sooner. Most policy owners with terminal or chronic illnesses sell their assets for medical care.
3. It's Possible to Retain Your Death Benefits
There are three different kinds of life settlements, though. One of which allows you to keep your death benefits, so you have something to leave your family once you've passed on to the next life. It still relieves you of paying the premium when you've agreed to work with a life settlement company.
However, you also won't receive any cash payment after the transaction because you can expect to get a portion of the death benefit. Take note, though, that the life settlement company will be receiving the other half of the policy benefits because they paid for the remaining premiums.
The traditional arrangement involves the investor or investment company taking complete ownership of the policy. This means that they agree to continue repaying the premiums in exchange for getting the full death benefits. They'd pay the policy owner with a cash settlement after the transfer transaction.
4. Life Settlement Companies can be Brokers or Investors
Some life settlement companies are brokers or intermediaries between the buyer and seller. They earn through commissions from the arrangement. Others are an investment company that coordinates with policy owners directly.
5. The Cash Settlement May Be Taxable
Life settlements provide lots of benefits for the policy owner while they're still alive. However, it's prudent to weigh the pros and cons of settling for a cash payment seriously instead of waiting for your death benefits. One factor to consider is the tax that may be imposed on your settlement.
Talk to your accountant first before pushing through with your decision to sell your life insurance policy. They may be able to find legal ways to minimize the tax impact.
Conclusion
Life settlement companies help senior citizens sell their policies, which are considered as assets, if they need it for personal or medical care. You must be aged 65 or above with an insurance value of more than 50,000 USD. There's also a way to retain death benefits, so you must talk with a representative about your ideal plan. Consider the tax consequences of selling your policy. This way, you get an idea of precisely how much you can expect as a net cash payment.
