Frequently Asked Questions About Life Settlements
Q. What is a life settlement?
A. A Life Settlement is a sale of a life insurance policy where the insured
is 65 years of age or older and does not have a terminal or chronic illness.
In a life settlement transaction, the owner of the policy always receives
more for the policy than the issuing insurance company will pay for the
surrender of the policy.
Q. What types of life insurance policies can be sold?
A. Policies must have insureds that are
at least 65 years of age and need to have a Face Amount of
at least $100,000.
Types of policies eligible include: universal life, term
life (if convertible), whole life, variable life, and variable
or universal survivorship/second to die.
Q. Are there any medical exams or application costs?
A. No. The application and appraisal process
with Chesapeake Financial Settlements, LLC is free and no
medical exam
is required. The insured will only have to consent to having
their medical records can be reviewed.
Q. What determines the price offered for a policy?
A. The amount to be paid to the owner of the policy will
depend upon a number of factors, including the medical
condition of the insured, the amount of premium payments
to keep the policy in force and the cash surrender value
of the policy.
Q. What is the process of the life settlement transaction?
A. An application is submitted to Chesapeake Financial Settlements,
LLC (CFS). We will obtain an in-force illustration of the
policy from the issuing insurer showing the Face Amount
and any outstanding loans and premium due.
CFS also obtains copies of the insured’s existing
medical records from the insured’s physicians. No medical
exam is necessary for the insured. We then package this information
and submit it to multiple life settlement providers to establish
a competitive marketplace and obtain the highest possible
offer.
Once an offer is made and accepted, the life
settlement transaction is documented and proceeds to closing.
The settlement
provider will deposit settlement amount with an escrow agent
or trustee. The money will be sent within three business
days of the date that insurance company confirms to the provider
that the transfer of policy ownership has been completed.
Q. How long does it take to complete a life settlement transaction
from start to finish?
A. Our goal is to complete most transactions
in 90 days. The life settlement providers need to
review medical
records carefully and sometimes obtaining these records
may take some time to accomplish and can slow down the transaction
process.
Q. After the policy is sold, how will the buyer know that
the insured has passed away?
A. Life settlement providers employ a number
of techniques to determine the insured’s status. For
example, most use the Social Security Administration’s
public database, which “frees up” a social security
number when someone dies. They will also periodically call
a person designated
by the insured to inquire as to the insured’s health
status. Most states prohibit the providers from contacting
the designated contact more that four times per year.
Q. What if I change my mind?
A. If you change your mind about selling the policy, you
can cancel the settlement contract at any time up to the
15th day after you receive the money from the provider.
To cancel the life settlement contract, you will have to
return any money the provider paid to you for the purchase
of the policy along with any premium payments the provider
paid to keep the policy in force.
Q. What if I die shortly after selling the policy?
A. If the insured dies at any time up to the 15th day after
you receive the money from the provider, the settlement
contract will automatically cancel. The provider will pay
the owner of the policy or the beneficiaries designated
by the owner in the life settlement contract any proceeds
it receives from the policy, minus any money it already
paid for the purchase of the policy and any premiums it
paid to the insurance company to keep the policy.
Q. Are the proceeds from the life settlement taxable?
A. The proceeds from a life settlement are
generally tax free up to the amount of the premiums paid
for the policy.
The difference between that amount and the cash surrender value is generally taxed as ordinary income. Amounts received
in excess of the cash surrender value are generally taxed
as a capital gain. We strongly encourage sellers to consult
their own tax and financial advisor before completing a
transaction so that they can determine the tax impact from
the sale.
Q. What is the difference between a life settlement
broker
and a life settlement provider?
A. Although both a broker and
a provider are instrumental participants in the sale of
your policy, there are important
differences between them. A broker works
for the policy owner. The broker’s job is to “shop” the owner’s
policy to multiple providers and create a competitive environment
that ensures that the owner receives the best offer possible.
A provider works on behalf of the institutional investors
that they represent. Their objective is to purchase your
policy for the lowest price possible and maximize the return
on investment for their investors.
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