Life Insurance Planning Guide

The aim of this article is to help guide you through the life insurance planning process. We will take you through the steps from beginning to end. In addition, we have structured the information in the form of questions you may ask yourself while starting the planning process.

What is life insurance?

Life insurance pays out a lump sum of money called the ‘death benefit’ to the beneficiary, or person designated to receive the money, upon the death of the insured (person insured by the policy). As a result, the death benefit allows the beneficiary to meet any financial obligations left when the insured passes away.

How does life insurance work?

Life insurance is a unilateral contract between the policy owner and the life insurance company. Therefore, you pay a premium and in exchange the insurance company offers you a policy that pays a death benefit when you die. The beneficiary can be a person(s), trust or business. Additionally, the death benefit is paid to the beneficiary income tax-free.

What does life insurance cover?

Most life insurance policies insure the life of one person. However, joint policies can insure two lives and pay the death benefit upon the second death.

What are the advantages of life insurance?

Life insurance can provide three main advantages:

  • Death Benefit (Income Tax-Free to Beneficiary)
  • Affordable protection
  • Investment Value (Permanent Life Insurance)

Death Benefit (income Tax-Free to Beneficiary) 

A life insurance death benefit avoids income taxation. For instance, if you are insured for $1,000,000, when you die your beneficiary will receive the money without having to pay income taxes on it.

Affordable Protection

Life insurance is affordable. For example, a healthy 35-year-old male can purchase a $1,000,000, 10-Year Term policy for around $19 per month. Below is an example of pricing:

Investement Value

Permanent life insurance can provide a savings feature called the cash value. The cash value is a savings account inside the policy that grows tax-free based on dividends or investment growth.

Why should I buy life insurance?

There are two main reasons for buying life insurance: Family Protection Business Protection. Below are the different reasons why one would purchase coverage in each situation.

Life Insurance Planning for Families:

Family Protection

If you have a family, life insurance is important. For example, if you are the main income earner, your family will need a way to replace your income and cover any debts when you pass away. If you are a stay at home parent, your time spent parenting is a 24/7 job. Above all, your contributions to the household are important. Salary.com estimates the average cost to replace a stay at home parent would be $178,201 per year. Thus, life insurance can cover the costs of childcare and other household needs in the event that a stay at home parent passes away.

Mortgage Protection

Life insurance can be used to pay off the remaining mortgage on your home. Therefore, your family can afford to pay off the mortgage and continue to live in their home.

Estate Planning

There is always need for cash at time of death. For example, your family will need to pay for a funeral, debts, income taxes, and attorneys or accountants to manage any trusts, wills, or assets. Life insurance can help cover these costs.

Protection from Economic Life-Cycles

Imagine if you passed away in 2008 when the average market loss was around 30%. Life insurance provides your beneficiary with cash eliminating the need to liquidate any investments during uncertain times.

Divorce

Many courts will require a life insurance policy as a form of alimony protection or child support protection. As a result, some people choose a return of premium life insurance policy, which allows you to recoup the premium payments at the end of the obligation period (like a savings account).

Student Loans

Did your parents co-sign your loans? Will your spouse be responsible for your student loans if you pass away?  It depends on the property laws of your state whether or not they will be obligated to pay your debt.

Therefore, it is important to consider purchasing life insurance, which can protect your spouse or co-signers from creditors.   

Long-Term Care Planning

A long-term care rider allows you to use your death benefit to pay for long-term care. For example, the average cost of care for a private nursing home in the U.S is $7,698 per month, and in 20-years the cost will be closer to $15,383. Therefore, imagine having to liquidate your retirement savings at an additional $15,383 per month! Long-term care planning can help offset this expense. The Wall Street Journal’s Video “Behind the Rising cost of Long-Term Care,” does a great job explaining this topic.

Retirement Planning

The cash value inside a permanent life insurance policy grows tax-deferred. Therefore, the owner can take withdrawals or loans from the policy on a tax favorable basis. In addition, these policies can be structured to supplement retirement income.

Life Insurance Planning for Businesses:

If you have a family, life insurance is important. For example, if you are the main income earner, your family will need a way to replace your income and cover any debts when you pass away. If you are a stay at home parent, your time spent parenting is a 24/7 job. Above all, your contributions to the household are important. Salary.com estimates the average cost to replace a stay at home parent would be $178,201 per year. Thus, life insurance can cover the costs of childcare and other household needs in the event that a stay at home parent passes away.

Life Insurance for a Buy-Sell Agreement

Many businesses have multiple owners. Consequently, many owners ask one big question: “What happens if one of my partners gets sick or passes away prematurely?” – Business Owner Life Insurance provides the liquidity (cash) needed to buy out a partner’s share in the business upon their death. In contrast, disability insurance provides the liquidity needed to buy out a partner due to a prolonged illness or disability.

Key-Employee Life Insurance

Key employee life insurance is used to protect a business in the event a key employee passes away. Key employees are, for instance, those with special relationships, skills, or knowledge of the business who may be difficult to replace. Hence, businesses can use the life insurance funds to cover the cost of hiring new talent or supplementing losses.

Life Insurance as an Employee Bonus

Life insurance policies for the benefit the employee and their family are considered a form of employee benefit. Therefore, these policies help businesses recruit, reward, retain, and retire top talent. Below are examples of different arrangements: Life insurance paid by the business for employees family Non-Qualified Deferred Compensation NQDC Corporate Owned Life Insurance COLI 162-Bonus Planning 162-Bonus Planning These topics go beyond the scope of this article, see the links for more information about life insurance planning for businesses.

What determines the price of a life insurance policy?

Age of Insured Death Benefit Amount Rate Class Type of Policy (Term vs. Permanent) Riders (Additional Coverage)

Age of the Insured

Everything else being equal, the older the insured, the higher the cost of the insurance. In other words, the older you are, the lower your life expectancy, and the higher the price will be. For example, here is the most current life expectancy table from Social Security.

Death Benefit Amount

The higher the death benefit, the higher the price. Insurance companies have pricing discounts called “banding” rates and most carriers discount the cost at every $250,000 increment.

Rate Class

Your rate class is how an insurance company determines what to charge you. For example, the risker you are, the higher the price is for insurance. Above all, your risk factors are dictated by your current and past health, family health history, lifestyle, and avocations (extreme sports or hazardous activities).

Healthy

If you are super healthy, have a great family health history, and don’t participate in hazardous activities, then you will qualify for the best rates. READ: 10 Questions: Buying Life Insurance During COVID-19 Pandemic:

Unhealthy

If you take multiple medications, have past hospitalizations, are overweight, use nicotine, or have any chronic illnesses, then you most likely will not qualify for the lowest rate.

What are the different rate classes?

Below is a list of rate classes. Some insurance companies use different names to represent the same rate class. Preferred Best Non-tobacco (Super Healthy Discount) Preferred Non-tobacco (Healthy Discount) Standard Plus Non-tobacco (Above Average Discount) Standard Non-tobacco (Average Health) Preferred Tobacco (Healthy + Tobacco Use) Standard Tobacco (Average Health + Tobacco Use) Table Rate (Below Average Health)

What are the different rate classes?

A “table rate” is an additional charge due to unfavorable risk. A table rate generally increases the price by 25%.

Type of Policy

Term life insurance provides coverage for a limited number of years. Therefore, the longer the term, the higher the cost. Permanent life insurance provides lifetime coverage and will be more expensive than term insurance.

Riders (Additional Features)

A rider is an additional policy feature, for example, a child rider or waiver of premium. As a result, the rider will increase the cost of the insurance.

Are life insurance rates locked in?

Term life insurance rates are locked in for the duration of the term period. In contrast, permanent life insurance rates were originally designed to stay locked in for the life of the contract. However, since there are a lot of different types of products and designs, we recommend you double-check the guaranteed provisions of your policy.

What are the different types of life insurance products?

Life insurance products can be broken down into two main groups: Term Permanent Within these groups there are various types of products, some being much more common than others.

What is the best kind of life insurance?

“The best kind of life insurance is the kind you have the day you die.” Your financial goals will dictate which type of life insurance to use in your planning. In addition, your needs may change over time based on your health and financial goals, which means it’s important to continue to review your policy.

Below is a list of the policies available in the market today.

Term Life Insurance Options Traditional Term Life Insurance Annual Renewable Term Life Insurance Return of Premium Term Life Insurance Permanent Life Insurance Options Whole Life Guaranteed Universal Life Insurance Universal Life Insurance Indexed Universal Life Insurance Variable Universal Life Insurance No-Load Life Insurance Hybrid Life Insurance or Linked Benefit Life Insurance For now, we are only going to focus on the most common types life insurance policies, which are highlighted above.

Term Life Insurance

Term life insurance is the most commonly bought policy in the market. It is designed to provide coverage for a specific period or time, hence the name “term” insurance. Furthermore, term life insurance is pure insurance like car insurance; it only pays a benefit if you die. Term insurance is sold in 10, 15, 20 and 30-year increments, however, the most common policies are 10 and 20-year term. Below is an example of a term life insurance comparison quote for a healthy 35-year-old woman, for $1,000,000 of coverage:

What happens at the end of a term life insurance policy?

Term life insurance rates are locked in for the duration of the given term period. When the term period ends, the policy will do one of the following things: The death benefit will remain the same and the premium will increase annually. The premium will remain the same and the death benefit will decrease annually.

Here is why this could be important:

If you are terminally ill, then you would not want your policy’s death benefit to decrease. Therefore, you’d want to be able to keep the same coverage and pay a higher premium

Return of Premium Term Life Insurance

If your are still living and no longer desire coverage at the end of the term period, then a return of premium (ROP) term life insurance policy returns all the payments you have made at the end of the term. Below is an example of a 20-year ROP term life insurance quote for a healthy 40-year-old male, for a $500,000 policy.
First of all, notice how in the 20th year of the policy, there is $28,800 available as a surrender value? If the client decides to cancel the policy at 20 years, then they will receive all their premium payments made back.

Permanent Life Insurance

There are two types of permanent life insurance: whole life and universal life. There are many variations of universal life insurance, but guaranteed universal life is the most popular. As a result, we will mainly focus on guaranteed universal life in this article.

Whole Life Insurance

Whole life was the first life insurance product created and it provides coverage for the entire life of the insured. Furthermore, whole life insurance contains a savings component called the “cash value,” where savings grow tax-deferred.

Whole life insurance offers the following features:

Lifelong Coverage Guaranteed Level Premiums (Price won’t change) Guaranteed Cash Value Non-Guaranteed Cash Value

How does whole life insurance work?

The premiums paid into the policy pay for the life insurance death benefit while a portion of the premium goes into a tax-deferred savings account called the “cash value.” The cash value earns interest and dividends, increasing the cash value over time.

Why do people buy whole life insurance?

People buy these polices to supplement their savings. This is due to the fact that the policy offers a guaranteed rate of return, called the guaranteed cash value. The policy also has a non-guaranteed rate of return based on the performance of the insurance company. Below is an example illustration of a Whole Life policy for $100,000 in coverage for a healthy man, age 60:

Guaranteed Universal Life (GUL)

Guaranteed universal life insurance was created to compete against whole life insurance. The goal, therefore, is to provide permanent life insurance that lasts the insured’s entire life, at a lower cost. It is usually about half the cost of whole life insurance. The reason GUL is less expensive than whole life is because it grows very little to no cash value over time.

GUL offers the following features:

Lifelong Coverage Level Guaranteed Premiums (Price won’t change)

How does a GUL policy work?

When the client pays the required premium and doesn’t take any loans or withdrawals from the cash value, the policy will pay out the death benefit when the insured passes away. Below is an example illustration of a Guaranteed Universal Life policy for $100,000 in coverage for a healthy man, age 60:

Whole Life vs. Guaranteed Universal Life

After analysis, both policies offer guaranteed death benefits, guaranteed premiums, and a guaranteed premium payment structure. The main difference between whole life and guaranteed universal life is that a GUL policy will build little to no cash value. Because of this, all other things being equal the GUL policy is about half the cost of a Whole Life Policy.

What factors affect the pricing of life insurance?

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Health of Client

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Tobacco Use

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Prescription History

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Family Health History

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Driving History

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Avocations of Insured (Lifestyle)

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How do I save money on life insurance?

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How to obtain the lowest life insurance rates and best underwriting offer:

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Tobacco Use

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Prescription History

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Family Health History

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Driving History

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Avocations of Insured (Lifestyle)

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The aim of this article is to help guide you through the life insurance planning process. We will take you through the steps from beginning to end. In addition, we have structured the information in the form of questions you may ask yourself while starting the planning process.

What is life insurance?

Life insurance pays out a lump sum of money called the ‘death benefit’ to the beneficiary, or person designated to receive the money, upon the death of the insured (person insured by the policy). As a result, the death benefit allows the beneficiary to meet any financial obligations left when the insured passes away.

How does life insurance work?

Life insurance is a unilateral contract between the policy owner and the life insurance company. Therefore, you pay a premium and in exchange the insurance company offers you a policy that pays a death benefit when you die. The beneficiary can be a person(s), trust or business. Additionally, the death benefit is paid to the beneficiary income tax-free.

What does life insurance cover?

Most life insurance policies insure the life of one person. However, joint policies can insure two lives and pay the death benefit upon the second death.

What are the advantages of life insurance?

Life insurance can provide three main advantages:

  • Death Benefit (Income Tax-Free to Beneficiary)
  • Affordable protection
  • Investment Value (Permanent Life Insurance)

What are the Advantages and Disadvantages of a Life Settlement?

A life settlement has advantages and disadvantages. Retirement Living

Advantages

Cash for Expenses

A life settlement can provide cash for expenses. Since the money belongs to you, you can choose to spend it how you wish. For example, the money can be used to pay for medical expenses or cover your mortgage.

You Stop Paying Premiums

A life settlement can help if you are struggling to pay your premiums. Along with receiving a lump sum, you can stop paying your premiums once the sale is complete.

This can make sense if you no longer need your policy. You save money from not paying premiums. You can use the amount you save to fund other needs in your life.

Disadvantages

Your Proceeds May Be Taxed

Some or all of the proceeds of a life settlement may be taxable under federal income tax, state franchise tax, state income tax laws, and/or other tax laws, so you should seek assistance from a professional tax advisor before completing a life settlement.

You Can Be Disqualified for Some Types of Government Support

The proceeds from a life settlement can place you in a higher income bracket. This can mean that you may become ineligible for:

  • Medicaid
  • SSI
  • SNAP food benefits
  • Section 8 or HUD housing benefits

Each policy owner should consult their own tax advisor for the impacts of receiving proceeds from a life settlement.

What Are the Different Types of Life Settlements?

The most common life settlement options are traditional, viatical, and retained death benefit.

Traditional

Traditional life settlements are the most common type of life settlement. You receive this type of settlement if you meet the criteria described above. You must also have a life expectancy greater than twenty-five months.

Viatical

Viatical settlements are similar to traditional life settlements. The difference is that they are for those whose life expectancy is less than twenty-five months.

Viatical settlements typically pay more than traditional life settlements as a result of the shortened premium period the buyer expects to pay the premium and the expected collection of the death benefit within twenty-five months. Therefore, they are willing to pay more.

If you have a terminal illness, you may qualify for a viatical settlement.

You may also qualify if your life expectancy is greater than twenty-five months.

Retained Death Benefit

A retained death benefit (RDP) is when you sell a portion of your policy. You receive a smaller lump sum than if you were to sell the entire policy.

The buyer then becomes responsible for paying part or all of your premiums.

A portion of your policy’s death benefit goes to the buyer. The remainder passes to your beneficiaries.

What Is the Life Settlement Transaction Process?

There are roughly five steps in the life settlement process:

1) Estimate Policy Value

A life settlement broker can help you with the process of selling your policy. To begin, they need to estimate the value of your policy. To do this they start by asking you some initial questions.

The four main factors they consider are your age, the type of policy, the current premium, and the amount of the death benefit. They also ask how long you’ve owned the policy.

Ideal candidates are aged 70 or older. Your policy may qualify if you are younger than 70 or have a serious illness.

Most buyers only consider policies with a death benefit of at least$250,000, but some will look at policies below $250,000. Life settlement providers need higher profits to cover their expenses.

Your policy can be a permanent life insurance policy or a term life insurance policy. This policy can be an individual or group policy.

Finally, the buyer needs to know how long you’ve had the policy. States require that a policy be held for a certain number of years before selling. Each state has its own requirements.

2) Complete an Application & Obtain Medical Records

Next, you fill out a life settlement application. The application contains basic questions regarding you and your policy.

You also need to fill out a medical release form. The buyer needs your medical history for the past five years. The underwriter uses this information to calculate your expected lifespan. A shorter lifespan increases the amount a buyer will pay.

Finally, you complete an authorization form. This form goes to your broker. This allows them to confirm the details of your policy directly with your insurance company.

3) Submit to Auction

A life settlement broker presents your policy to multiple buyers. We call this an auction market.

This creates competition among buyers and helps you receive a higher price.

4) Review Bids

Your broker will then present the bids for you to review.

You usually have up to 14 days to review and accept a bid.

5) Decide to Keep or Sell

At this point, you may accept or decline any offer.

It is important at this point to determine if you would rather keep the policy or sell to a provider. We recommend reviewing your options with your trusted advisor.

Should you accept an offer, the broker informs the provider, and you will move forward with completing the closing package and underwriting review.

6) Complete Closing Package & Underwriting Review

The buyer will conduct a formal underwriting review based on the information provided.

The buyer then sends a closing package to your life settlement broker. The documents included in the package depend on the state in which you live.

The package often includes three items:

  1. a contract
  2. verification from the insurer that the policy is still active
  3. a letter stating you are of sound mind.

You also have to sign documents changing ownership and the beneficiary to the buyer.

7) Close & Recieve Cash Payout

Once the buyer receives your closing package, they transfer your lump sum to an escrow account. An escrow agent verifies the documents you signed.

The buyer completes the transfer of ownership. The funds in the escrow account are then released to you.

How Is the Value of Your Life Insurance Policy Determined?

Buyers consider three main factors: life expectancy, the cost of keeping the policy in force, and the amount of the death benefit.

These factors determine the amount providers will offer on a policy.

Life Expectancy

The buyer reviews the life expectancy reports that are based on the insureds overall health as determined by current and past medical records.

The life expectancy reports will take into consideration your lifestyle habits, tobacco usage, alcohol use, and other medical factors.

The shorter your life expectancy, the higher the bid for your policy. The buyer assumes they can receive the death benefit from your policy sooner.

Likewise, you receive less when you are expected to live longer.

The Cost of Keeping the Policy In-Force

Since the buyer takes over the premiums, your policy’s annual cost is a factor.

Typically more efficient policies will yield a better settlement value.

The Death Benefit of the Policy

Perhaps the biggest factor is the amount of your policy’s death benefit.

Most buyers only consider policies with a death benefit of at least $250,000, but some will look at policies below $250,000.

Other factors beyond these three may affect the amount you receive. These include current market conditions and your policy’s cash value.

Other Factors

These include current market conditions and your policy’s cash value.

Do I Owe Taxes If I Sell My Life Insurance Policy?

A life settlement can incur taxes. Therefore, taxes should be a factor when considering a life settlement.

Tax laws change, therefore we advise you to consult with your tax advisor before moving forward with a life settlement.

How a Life Settlement Is Taxed

Some or all of the proceeds of a life settlement may be taxable under federal income tax, state franchise tax, state income tax laws, and/or other tax laws, so you should seek assistance from a professional tax advisor before completing a life settlement.

How Are Life Settlements Regulated?

As of June 2021, 42 U.S. States regulate life settlements. These regulations are overseen by the state’s Department of Insurance.

Rules may include when you would receive your money or how the transfer of ownership takes place. Your state may also regulate how much commission your broker can receive.

If you reside in a state that regulates life settlements, a broker or buyer must follow these rules.

These rules are meant to protect you, the seller, as well as the buyer.

Policy Ownership Anniversary

As of June 2021, some states require you keep a policy for a minimum number of years. This prevents you from taking out a policy for the sole purpose of selling it.

If you live in one of the following states, you have to wait at least five years before you can sell your policy:

  • OR
  • NV
  • ND
  • NE
  • IO
  • WI
  • OH
  • WV
  • NH
  • FL

If you live in Minnesota, you have to wait at least four years.

These states do not regulate life settlements. Thus, no waiting period exists other than the two-year contestability period and suicide provisions.

  • AL
  • MI
  • MO
  • NM
  • SC
  • SD
  • WY
  • Washington D.C.

All other states require that you wait at least two years before selling.

You still may be able to sell your policy during the mandatory waiting period, if your state has one. Some of these states allow exemptions. Such events include recently retired or divorced or the death of a spouse. Other major life events may apply.

You can check with your state’s Department of Insurance to find out its rules for life settlements. You can also consult with a financial advisor or life insurance broker licensed in your state.

Your Disclosures and Transparency

Most states have laws that require brokers and buyers to disclose important information to you. In other words, they must be truthful in the facts regarding your policy.

Your state may require your broker to inform you of:
  • all offers, counter-offers, acceptances and rejections from buyers
  • your lump sum being subject to creditors’ claims
  • the rescission period, which is the number of days to change your mind after the sale
  • the amount of their commission from the sale
  • other options besides selling your policy

Broker Licensing

All life settlement brokers must hold a license in life insurance. They must also have an additional life settlement license. The license in life settlements usually requires the broker to have additional training and experience.

Fiduciary Duty

Depending on your state, your broker may also have a fiduciary duty to represent you. A fiduciary duty means they are legally required to work in your best interests, not the buyers.

This is an important consideration. We advise you to work with an individual who acts as a fiduciary.

Be sure to check with your state’s Department of Insurance to verify that your broker is properly licensed. You can also check with your state regarding your broker’s fiduciary duty.

Life Insurance Settlement Association (LISA)

The Life Insurance Settlement Association (LISA) is a non-profit organization. It consists of brokers, buyers, financing entities, and other service providers related to life and viatical settlements.

LISA educates consumers and advisors about life settlements.

What Should You Consider Before Doing a Life Settlement?

Risks to consider include fees, taxes, and the needs of beneficiaries.

Life Settlement Fees

Your broker earns a commission for helping to sell your policy. Their fee is a percentage of one of the two most common values:

  • Percentage of the face value of the policy. The face value is the original death benefit. It does not include any outstanding loans against the policy.
  • Percentage of the sale price of the policy. Since the sale price is a much smaller amount than the face value, a higher percentage is used.

The percentage of broker fees ranges from 6%-10% of the policy’s face value or 30% of the offer.

How to Calculate a Life Settlement Fee

For example, if your policy’s face amount is $500,000 and you receive an offer for $120,000, the fees could be calculated like this:

$500,000 X 8% of the policy’s face value = $40,000

OR

$120,000 X 30% of the offer = $36,000

A broker usually charges the lesser of these two fees.

They would charge $36,000 for the sale of this policy, not $40,000.

Taxes When You Sell Your Policy

As explained above, you may owe taxes.

The proceeds of a life settlement are almost certainly taxable. The assistance of a professional tax advisor should always be sought. The proceeds of a life settlement could also be subject to the claims of creditors. If the seller is within two years of death, other laws making the proceeds tax-free may apply.

lisa.org

Leaving Beneficiaries With Nothing

A life settlement transfers ownership of your policy to another person or institution. This means your current beneficiaries lose the death benefit.

You should determine if there is a need to keep the life insurance policy to leave to your beneficiaries.

We recommend talking to the beneficiaries about the transaction. Including asking family members if they would like to assume the premium payments in future years on the policy.

What Are Alternatives to Life Settlements?

Accelerated Death Benefit

One alternative to a life settlement is utilizing the accelerated death benefit (ADB) should your policy have one.

An accelerated death benefit allows you to take money from your policy, tax-free. It is deducted from the death benefit.

You do not need to pay back the money you withdraw. However, if you do not pay it back, your beneficiaries receive less upon your death. The amount they would receive would be the original death benefit minus the amount of the withdrawal.

There are tight restrictions on when you can use an ADB. In some cases, it can only be exercised if you are terminally ill and have a life expectancy of less than two years.

You may also be able to use the ADB if you are dealing with a chronic or serious illness.

Finally, you might be able to withdraw money from your death benefit if you have difficulty with everyday activities. The everyday activities included are eating, bathing, dressing, mobility, maintaining continence and toileting.

The situations that apply are stated in your policy. Your insurance company or broker can help determine if you qualify.

Should you wish to use your ADB, you still need to pay your premiums to keep the policy in force.

Policy Loan

If you need cash, you could consider a loan against your policy. This is known as a death benefit or life insurance loan.

The interest on the loan varies by policy. You can choose when to pay it back. You also have the option of not paying it back at all.

Should you not pay it back, the loan amount plus interest is deducted from the death benefit. As a result, your beneficiaries receive less.

Surrender the Policy

You might choose to surrender your policy instead of choosing a life settlement.

Surrendering your policy may be an option if:
  • it’s no longer needed
  • you can’t afford the premiums
  • you want to access its cash value
  • you’ve found a better policy

When you surrender your policy, you lose the death benefit.

You may be charged a surrender fee. Surrender fees vary and the older your policy, the less you pay. Policies ten years or older may not incur any fees.

In exchange, you are given the policy’s cash surrender value. The cash surrender value is the equity in the policy plus interest or dividends minus any fees and loans.

Who Is Involved in a Life Settlement?

Policy Owner

The policy owner is the person who bought the policy. The policy owner may also be the insured but not always.

Insured

The insured is the person whose death triggers the death benefit. When the insured dies, the beneficiaries receive money from the policy.

Life Settlement Brokers

Life settlement brokers facilitate the sale of a life insurance policy. They act on behalf of the policy owner. They are responsible for presenting policies to buyers for purchase.

Life Settlement Providers

Life settlement providers are the buyers of life insurance policies for sale.

Insurance Company

The insurance company issued the policy.

Insurance companies accept premium payments in exchange for taking on risk.

Life insurance companies must legally pay the death benefit on an in-force policy when the insured passes away. This death benefit goes to the beneficiaries listed in the policy.

Life Settlement FAQs