Determining whether a life settlement is right for your client is dependent upon a thorough understanding of the process. Life settlements can be used to better your client’s lives, so it is important to garner as much information as possible. Below is a list of frequently asked questions and answers regarding the opportunity life settlements present.
What are some of the reasons a client may want to sell their life insurance policy?
Clients may choose to sell their life insurance policy for a variety of reasons. Maybe the client can no longer afford paying premiums, or they want to allocate funds towards other areas of their retirement planning. A client may also want to consider a life settlement when their term policy is about to lapse, when estate protection is no longer necessary, or when dependents no longer need the benefit.
How does a life settlement differ from a viatical settlement?
Contrary to popular belief, “life settlement” and “viatical settlement” are not interchangeable terms. Viatical settlements are intended for policy owners with a 2-year life expectancy or less - often accompanied by a terminal illness. Unlike viatical settlements, life settlements can pertain to longer life expectancies, generally around 15+/-.
Why were insurance carriers opposed to life settlements initially and where do they stand today?
Initially, insurance companies were opposed to life settlements due to the lack of regulations surrounding the market and the unscrupulous behavior this encouraged.
But this quickly began to change as the U.S. government stepped in to address the concerns of the public by introducing laws regulating the sale of life settlements. (Currently, 45 states and Puerto Rico fully regulate the sale of a life settlement, with Florida and California imposing minimal regulation.) As life settlements became regulated and better understood, insurance carriers began opening up to the practice and recognizing its value.
What are the recent changes in tax law and increases in the lifetime federal estate tax exemption?
As of recently, the estate tax exemption increased to $11.2 million per individual and $22.4 million per married couple. Life settlements thus resulted in greater tax savings for individuals than in the years prior. Life insurance is an important feature of estate and tax planning for high net worth clients. With the recent update in tax laws, a secondary market valuation analysis can help financial advisors determine whether a life settlement is right for these clients.
At Ashar Group, we serve as an independent resource for the financial planning community by providing expertise in life insurance appraisals, life settlement services, and longevity analytics for advanced planning applications. We believe that life settlement decisions made by consumers are most ethically made when they are represented by their own advisor or planning team. For more information on how the life settlement process works, give us a call or take our 7-question policy value quiz.