Seniors take life settlements because they tend to convert their insurance policy into a source of income that will last them for the remaining years. When you take up a life settlement, there are a few reasons why you may have reached this decision- If you’re over the age of 65 and not have any chronical illness, then you can sell your policy to a third party settlement agency for an amount that’s more than the cash surrender value, and the amount you receive will be terminated voluntarily just before the maturity period, but it would still be less than the net death benefit amount. The new buyer will take over the premium payments on the policy, and they will also collect the benefit once the original policy owner passes away.
Listed below are some of the frequently asked questions that people have before they decide to sell their policies to a good life settlement company.
Will the settlement agency, I choose, have a license in my state?
An excellent and reputed life settlements agency will have all the legal documents required to function in your locality and state. If you’re doubtful, then you check with the state insurance commissioner; you can even check out the agency’s status online.
What will happen to my policy once I decide to sell?
The person or organization that decides to buy your policy will take over the responsibilities of paying your premiums and will also take over your death benefit when you pass away. They will also have access to any medical records that are inclusive of your health information.
What is the information I have to provide?
It would help if you remembered that when you sell your insurance policy, you give the settlement company and the buyer the authority to access your records and the release of your medical history information. There are chances that the buyer will share your information with other lenders.
How is my privacy protected?
Before you accept any offer from the life settlement agency, you need to step back and find out how the agency will handle your information and if they will do so in a confidential manner.
How can you get the best price for my policy?
If you’re taking help from a professional settlement agent, then they will help you in asking for bids that are received by potential buyers, including the process that the agent has to follow to ensure that the selling is done efficiently. You and the agent have to make sure that you get the best price available.
What are the transaction costs that are included in the selling process?
The commissions (if any) are paid for by the life settlement agency, and the fees can be as high as 30%. You have to ask your financial advisor or settlement agent if they are being compensated for anything and how is it calculated.
What is the tax consequence of selling my insurance policy?
The full payment that you will receive from the settlement company will not be taxed because you will get the money in one shot. The money is seen as funds that will be used to pay off bills or loans, but if the money is dispatched in monthly installments, then it will be taxed as it’s seen as income. However, it’s always a good idea to check with your financial advisor so that you don’t get blindsided when you decide to sell your insurance and receive the cash.
What if I change my mind during the settlement process?
When you’re purchasing a life insurance policy, it’s not necessary that you have to accept an offer, even if you have gone around looking for the best price. If you take the offer from the settlement company and later change your mind, then some states will allow the change of decision, provided you let the company know within a particular period.
Will the life settlement benefit my settlement agent or me?
Well, it’s true that the agent that gains your insurance policy will have some financial interest with your death, but most insurance settlements almost always result in the purchase of new life insurance policies.
Will I be pressured to make a quick decision?
A good life settlement advisor will never pressure you into making a decision you may regret later on. They will walk you through the basics, the process, and the result of selling your policy. They make sure you’re aware of all the possibilities and the benefits you receive, but they will never force you to do something you don’t want to do; they will divulge the information needed and give you enough time to make an informed decision.