Life Settlements
FREQUENTLY ASKED QUESTIONS
What exactly is a life settlement?
A life settlement is a regulated financial transaction that enables qualified life insurance policy owners to receive a portion of their future life insurance benefits by selling it to a state licensed financial institution.
The sale of a life insurance policy is similar to the sale of a home or car – all rights, title and ownership interest are legally transferred from the seller to the buyer. The buyer assumes responsibility for future premium payments and receives the policy benefits at maturity.
Who is eligible for a life settlement?
Eligibility requirements for a life settlement are based on two criteria:
Insured’s Age & Health Requirements:
• Insured must be over the age of 65 (individuals with health impairments are more likely to qualify).
• Younger Insureds must be diagnosed with a severe or end stage health conditions.
Life Insurance Policy Requirements:
• Policy must have a minimum face value of $100,000.
• Any type of policy can qualify for a settlement such as universal life, variable life, whole life, convertible term life, or even group life. Some policies may have restrictions that do not allow for a settlement, which can only be determined during the application stage.
Are the proceeds taxable? And, will they affect my eligibility for federal assistance?
The proceeds of the sale of your policy may be taxable under federal income tax and/or state franchise and income tax laws. The sale may also affect your right to receive Medicaid or other government benefits or entitlements. Settlement proceeds could also be subject to the claims of creditors.
Before you reach a decision, be sure to review a complete list of important considerations, which can be found in our application or on our website. Welcome Funds is not a tax advisor and strongly recommends that policy owners seek professional tax advice prior to accepting any life settlement offers.
Are life settlements regulated?
Yes, our highly regulated marketplace requires life settlement brokers and providers (buyers) to be licensed on a state-by-state basis. Consumer protections have been passed in more than 45 states and are typically regulated by the State’s Department or Division of Insurance.
STATE LICENSING REQUIRED
NO SPECIFIC SETTLEMENT REGULATION
Who buys life insurance policies in the secondary market?
Companies that purchase life insurance policies in the secondary market are called life settlement providers. These companies must be licensed by the Department or Divisions of Insurance in your home state. Non-licensed investors may not have the proper consumer privacy and confidentiality protections in place.
Providers represent institutional investors such as investment banks, multi-national banks, international corporations, pension funds, hedge funds, private funds and other major financial institutions—including life insurance companies and reinsurers—who are investing in life insurance policies through life settlement funds.
How does a life insurance policy have a fair market value?
Typically, life insurance policies were issued when the insured was in good health. As years go by, many people have a change in health, and in some cases, serious health conditions may develop. This change in health may create hidden equity in the policy that can be monetized through a life settlement.