MAGNA LIFE BLOG
Viatical settlements are usually in reference to the sale of someone’s life insurance policy who has been diagnosed as terminally ill, with a life expectancy of 24 months or less. The person who is sick will sell their policy to a viatical settlement provider that is specifically licensed to do the transaction. The provider is usually executing the transaction on behalf an investor funding the viatical settlement. They will offer a lump-sum cash payment equivalent to a percentage of the face value of the life insurance policy. Some states have regulations regarding minimum settlement amounts, which can be as high as 80% of the face value of the policy for terminally ill “viators.” The main reason that people in this type of situation sell their insurance policies is because they need to use their money before they pass away instead of leaving it to a beneficiary. Some specific reasons many people do this is to pay for medical care, living expenses or to make memories before dying.
Another type of similar transaction is a life settlement. This transaction is virtually the same, only the “settlor” or seller of the policy has a greater than 24 month life expectancy. Settlement amounts are often 6-8 times higher than the cash surrender value that a carrier is willing to give. In many cases, people no longer needing or who are unable to afford their policies just stop paying on them, causing them to lapse into worthlessness. Life and viatical settlements enable the policy owner to realize value where they might have previously thought none existed, thereby improving their financial condition while they live.
Who Is Able To Buy Life Insurance Policies?
As stated earlier, policies are typically bought by viatical and life settlement providers. They are able to buy policies using funds provided by investors or loans from other financial institutions. According to the Internal Revenue Code, a provider of a viatical or life settlement is a person or business that regularly buys or takes ownership of contracts of life insurance policies. The purchaser will make a profit by getting the full face value of your policy once you pass away, even though they only paid you a portion of it. This is because they have to keep the policy in force by paying the premiums until it matures. It is important to note that once you sell your policy, your beneficiaries will no longer get a payout once you pass away. Most reputable viatical or life settlement providers require beneficiaries to acknowledge the settlement before any money is paid to the seller of the policy.
How Much Is My Life Insurance Policy Worth?
The amount you will actually receive is going to depend on a number of factors including how much your policy is worth, how much the company will spend on your insurance premiums, and your projected life expectancy. Typically, the longer you have left to live, the less you will be given for your policy.
How To Pick A Viatical or Life Settlement Company To Sell To?
Viatical and life settlement companies or individual providers need to be licensed or registered with a state’s department of insurance. Only 7 states in the U.S. are not regulated. However, settlements can still be effected in those states, and most providers use best practices where no regulations exist.
Before selling your policy to a provider, be sure they are licensed or registered, where applicable, to legally buy your life insurance policy in your state as well as what the state’s requirements may be. This is important for many reasons, not the least of which is because it may play a big role in whether or how the sale of your life insurance policy is treated for tax purposes. In addition, you need to be certain if there are any other fees involved with the sale after you sell it. Always consult a professional when considering the sale of your policy.
Should You Consider Selling Your Life Insurance Policy?
Selling your policy is a personal decision and there is no single correct answer. Below are some important factors to consider first:
•Are their any tax penalties for selling the policy?
•Are your beneficiaries aware of your need to sell your policy?
•Are there other ways to get the money you need for living expenses until you pass?
• Does your policy include a living benefit rider or an accelerated death benefit rider?
Income Tax Penalty Considerations
In a lot of cases, if you are terminally ill and have less than two years to live, you can sell your life insurance policy without any tax penalties. In other cases, if you have been diagnosed as chronically ill and not terminally ill, the funds you receive may only be tax free if you use them to pay for qualified long-term care services.
Again, always consult a professional if you have a policy you do not need or cannot afford, and you wish to realize its true value while you live.
You’ve worked hard for decades. You’ve put in the hours and saved diligently, and it’s now time to reap the rewards. Starting retirement isn’t as easy as simply stopping going to work and watching the checks roll in, though. You want to maximize your retirement experience. These are your years, and you need to live them on your terms. Here are four ways how:
Trade in that expensive life insurance policy for a settlement
Are life insurance premiums eating up your cash? If you have a life insurance policy you no longer need, a life settlement could be a good option for you. Cashing in your life policy with the insurance company may not give you a large sum, but there are companies out there that will buy your policy from you for a significantly higher amount than the cash value offered by the insurer. They will take over as owner of the policy, while you will walk away with a big check and the comfort in knowing you won’t be paying the insurance company another dime. Being relieved of paying expensive premiums can free up cash that you can use for other purposes, while also giving you a sum of money that you can do whatever you please with.
Guarantee income for your life with an annuity
No matter how much you have accumulated in retirement savings, the risk of outliving your income can be a real threat to living in retirement on your own terms. Annuities are unique in that they can mitigate this risk by offering a stream of income guaranteed to last as long as you do. In simple terms, an annuity is a long-term contract between you and an insurance company. In exchange for a lump sum of money or a series of payments, the insurance company will provide income to you for your entire life. The income can begin immediately, or you can defer income for several years, allowing your investment to grow at a set interest rate or based upon the performance of the market. Income can be for your life, the lives of you and your spouse, a certain number of years, or a combination of these features. That can provide some serious peace of mind.
Maximize your Social Security benefits
Knowing you are eligible for Social Security benefits is very rewarding, especially after spending your working life seeing the deductions for those benefits being taken out of your paychecks. What some people don’t know, though, is that it can pay to wait as long as possible before taking Social Security income. Early benefits are typically available at age 62, but the full benefit age is 66 for people born in 1943-1954. Gradually, the full retirement age will rise to 67 for those born in 1960 or later. Don’t leave money on the table. In order to maximize your retirement income, it pays to wait as long as possible.
Truly living in retirement on your own terms means not being beholden to anyone but yourself. A great way to do that is to reduce or eliminate debt. Mortgages, auto loans, credit cards – these are all common types of debt that keep us trapped. Paying off a mortgage or a car may sound extreme, but why not throw a few extra dollars down toward the principal each month? Starting retirement on the right financial foot is paramount, and doing it with as little debt as possible will relieve a great burden of stress.
What does your ideal retirement look like? We hope that these four ideas will help you transform that vision into a reality.
In the 1911 U.S. Supreme Court case of Grigsby v. Russell, the Court ruled in favor of Dr. Grigsby after the physician was denied the rights to a life insurance policy that he acquired from a patient in exchange for medical attention. The individual sold Grigsby his policy for $100, and the doctor continued to pay premiums on the policy until the patient’s death.
Unfortunately, Grigsby was denied the benefits of the plan after the patient’s death because the executor of the deceased’s estate deemed the transfer of ownership as an unlawful wager on life, and therefore against public policy. Dr. Grigsby took his claim to the Supreme Court which ultimately ruled in favor of the doctor and affirmed a policyholder’s property interest in a life insurance policy and corresponding right to assign benefits as he or she pleases.
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A life insurance policy is designed to remain in place for decades, providing you and your loved ones with peace of mind. This is because death benefits can provide loved ones with financial support after you pass away. However, your personal finances can change drastically over time, and you may be in a situation where your life insurance premium is no longer affordable for your budget. You could simply cancel your policy in an effort to save money, but a better idea may be to sell it for cash.
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Magna’s Valerie Coffey having some fun on Austin’s Lake Travis! Stay tuned for more of the #Magna team and their adventures around Austin!
In anticipation of the upcoming LISA conference in Austin, here are some of our teams’ recommendations on what to do indoors while you’re here! We look forward to seeing you in May.
Magna is looking forward to the LISA Spring Conference in May which will be located in Austin! Here is Lyndsey Frahm and her husband at their wedding at the Texas State Capitol. Stay tuned for more of the Magna team and their adventures around the city.
In preparation for the upcoming LISA conference in Austin, here are some of the Magna team’s favorite things to do outdoors! We look forward to seeing you in May.
Magna is looking forward to the LISA Spring Conference in May which will be located in Austin! Here is Joey McCray spending time at the Austin City Limits festival! Stay tuned for more of the Magna team and their adventures around the city.
In preparation for the upcoming LISA conference in Austin, here are some ideas on where to grab a drink while you’re here! We look forward to seeing you in May.