Accelerated Death Benefit Versus Viatical Settlement: Which Is Best For You?
Hearing the news that a loved one is facing a terminal diagnosis is stressful for everyone in the family, and unfortunately financial concerns can also come into play along with the prospect of impending loss. What are the options for a terminally ill senior facing mounting medical or care expenses? Can a life insurance policy be leveraged to help meet that need?
There are two different options allow a policyholder to get cash out of a life insurance policy that might not be needed anymore. Both viatical settlements and accelerated death benefits could offer financial relief to families facing a difficult diagnosis, but the two agreements are different in several key ways.
Accelerated Death Benefit
An accelerated death benefit (ADB) is a provision attached to some life insurance policies that allows consumers to borrow against the value of the death benefit in the event of a terminal illness. The ADB, which comes in the form of a cash advance, is generally tax-free if the expected life expectancy of the policyholder is two years or less.
Generally an ADB is laid out as one of the features of a policy when it is originally issued, but according to some experts most insurance companies will consider providing the benefit if the policyholder meets the requirements, even if it wasn’t originally part of the policy. According to a January 2018 article on Investopedia, individuals may be eligible for an ADB if they meet one of the following criteria:
Diagnosis of a terminal illness with life expectancy of two years or less
Diagnosis of any serious illness that will reduce expected life span
Need for an organ transplant because of serious illness
Enrollment in hospice care
In most cases, a policyholder who accelerates his or her death benefit to help defray expenses only borrows against part of the policy, leaving a reduced death benefit that is still available for the original beneficiary. For example, if an individual with a $1 million life insurance policy needs funds for health care, he could borrow against half of that policy, receiving an offer of $265,000 cash against $500,000 of life insurance. That would leave $500,000 to go to his beneficiary upon his death.
A viatical settlement is a type of life settlement, but generally viatical settlements are reserved for those who have been diagnosed with a chronic or terminal illness. A terminally ill person is defined, for tax purposes, as one whose physical condition will be reasonably expected to end in death within twenty-four months of certification. A chronically ill individual is one who has been certified by a healthcare professional with either a substantial physical or cognitive impairment.
In a viatical settlement, a life insurance policy is sold to a third party for a lump sum, and the buyer assumes the premiums and receives the death benefit when the seller dies. The proceeds from a viatical settlement are generally exempt from federal taxation, because the Internal Revenue Service considers the payout to terminally ill individuals to be taxed in the same way as a benefit upon the death of the insured. In the case of someone who is chronically ill, the settlement proceeds can be tax exempt if the funds are used to cover certain health care expenses.
How to Determine Which is Best?
If a terminal illness has caused a financial strain, a life insurance policy can become an asset while the policyholder is still alive, but the individual will need to research the details of his or her policy to determine which type of transaction is better and more profitable for the situation. Sorting out the best path to help provide financial help to a family suffering a health crisis can be stressful, and a trusted advisor could help make sense of the situation and lay out the potential advantages of either path.
The first step, for any individual or their advisor considering the two options, is to determine whether the original policy included an ADB and whether the provider is willing to negotiate one if it isn’t laid out in the original terms. On the other hand, a viatical settlement usually requires documentation of a terminal diagnosis, so if such evidence is not available an accelerated death benefit might be the right choice.
The experts at Magna Life Settlements stand ready to advise anyone who thinks they might be eligible for a viatical settlement and answer any questions about the process involved in the sale. Set up a call with Magna today to ensure the best possible advice for your family through the illness of your loved one.
*Comments provided in this post are for informational purposes only and should not be construed as financial, legal or tax advice, recommendations or solicitations. Please consult your financial, legal or tax professional with questions related to the information presented, or for advice as to whether a life settlement is right for you.
June 26, 2019Bethany Bradsher
Cash Surrender Value: Know the Facts and Understand the Options
When a life insurance policy has outlasted its usefulness, the first step is for a policyholder to consider the best next option, and for universal and whole life policies that process starts with determining that policy’s cash surrender value. In order to understand the surrender value and its potential benefits or drawbacks, an individual at an insurance crossroads should know how that number is determined, why a surrender could be the best option for some people, and whether a possible alternative might be more profitable.
How Cash Surrender Value is Found
When a policyholder makes premium payments over the years to a whole life or universal life insurance policy, a portion of those payments accumulate as cash value and part of that amount goes to the death benefit of the policy. Cash surrender value is essentially the value of the money the individual has put into the policy, with a few variables like the performances of the markets in which the insurance company invested your money and the subtraction of fees charged by the agency.
For universal life, the longer a policy is in effect and the more robust the markets that were selected for a policy’s investment, the larger the cash surrender value will be. The value of a whole life policy grows at a fixed rate designed to grow the policy to the amount of the death benefit when the policy matures. Term life policies do not have a cash surrender value. The cash surrender value should be readily available to the policyholder with just a simple request to the insurance agent. Periodic reviews of a life insurance policy are recommended for everyone, and through the review process the policyholder will be able to track the growth of the surrender value.
When Terminating a Policy Might Be Beneficial
Every situation is different, and some people might find that they need to retain their life insurance policy but still need to obtain some of the cash value that has accrued. In those cases, a policyholder might borrow against their cash value, arrange to pay premiums using the cash value or even take out part of the cash value while leaving the policy in effect (the second and third options are not recommended for whole life insurance policies).
But if the policyholder’s circumstances have changed so much that the death benefit is no longer needed, an individual might decide to surrender the policy in order to receive the net cash surrender value. If a policy has been in place for a decade or more and the policy’s investments have fared well, the cash value will be hit with fewer fees and surrender charges. In that scenario, it might be worthwhile for a policyholder to benefit from that money and stop paying premiums at the same time. Such a decision, however, should be made only after weighing the other options available for making a profit off of an unwanted policy.
A Better Option?
It is crucial for those with life insurance policies to understand the determination and amount of their cash surrender value, but that doesn’t mean that their best path is always surrendering the policy to get their hands on that cash. The more lucrative option, in many cases, is to pursue the sale of the policy through a life settlement.
Life settlements aren’t the right choice for everyone, but if you are a candidate for a settlement you could yield a payout that is significantly higher than the cash surrender value of the life insurance. The two chief variables that determine suitability for a life settlement are the impairment level of the policyholder and the cost structure of the original policy. Generally speaking, the more serious the health impairment, in inverse relation to a more favorable rating when the policy was issued, creates the best situation for a profitable life settlement.
For example, if a universal life policy was issued at preferred-plus and the policy holder becomes significantly more impaired than predicted, a life settlement could yield sums up to four times the stated cash surrender value. Despite the possibility of a significantly larger payoff, many seniors go with a surrender anyway and take the cash value, because they have never been informed about the potential advantages of a life settlement.
Every policyholder should be informed about the value of their policy and the options before them when the insurance is no longer needed. Magna is a trusted life settlement representative that also works with insurance agents looking to present the best possible scenario for their clients. Seniors interested in learning more about the life settlement option can use our simple life settlement calculator to determine their next steps, and agents can learn more about our services to partner with insurance professionals by viewing our resources here. With the right information, insurance policies that have become a liability can benefit policyholders and help offset costly retirement expenses.
May 09, 2019Bethany Bradsher
What is a Life Settlement? [2019 Guide]
In many circumstances, a life insurance policy is an important investment that can benefit those left behind when a loved one dies. Many financial advocates would recommend life insurance to a client, but those same advisors understand that the efficacy of life insurance often runs its course. What alternatives exist for older policy holders who are still paying premiums despite the fact that their needs have changed and they don’t really need the policy anymore? It is possible that those individuals can sell their life insurance policy for cash value through a life settlement, in which a third party buys an unwanted insurance policy in exchange for cash. Here are some facts about the life settlement option:
The History Behind The Life Settlement Industry
The origin of life settlements dates all the way back to a 1911 Supreme Court case called Grigsby v. Russell. In the 1980s sellling an unneeded life insurance policy for cash became a way for people with diminished health to obtain funds for medical and living expenses. In the years since, legislation and tax laws have created a more favorable climate for consumers looking for options when an insurance policy is no longer needed. Statutes passed in the last five years now mean that 90 percent of Americans are protected by comprehensive life settlement legislation.
What Are The Benefits Of Selling My Life Insurance Policy?
The retirement years are costlier than ever, both because of the rising price of health care and the uncertainty of government resources like social security. A life insurance policy is an asset that can outlive its usefulness; the original beneficiary might not need the proceeds anymore, or the premiums have become burdensome. Under these circumstances, it is worthwhile for a senior to explore an option that can free up cash in the sale of that unwanted policy. Besides the obvious cash windfall, a life settlement also eliminates the premium payments that have depleted even more of a retiree’s limited resources.
Do I Qualify?
Two key variables dictate whether an individual would benefit from a life settlement: the policy holder’s level of health impairment and the cost structure of the policy. The two factors are related, where a policy issued with a higher rating combined with a poor health prognosis can result in a promising settlement offer. For example, if a universal life policy was issued at preferred-plus and the policy holder becomes significantly more impaired than predicted, a life settlement would provide a payout higher than the stated cash surrender value. Some policies are not a good fit for a settlement, and the owner may be better off to either surrender their life insurance policy for cash value, borrow against the policy’s value, or negotiate another option with their carrier. To find out whether a life settlement might be a good fit for you, visit Magna Life Settlement’s simple calculator.
What Are The Steps To Sell My Life Insurance Policy?
Because a life settlement can provide a significant cash payout to help pay for retirement expenses, no one should miss that opportunity simply because they don’t understand the life settlement process. As the word gets out about the potential upside of life settlements, seniors who are likely to benefit from these transactions need guidance about how it works and how to start the process. Here are the basic steps of a life settlement:
1. Determine your eligibility. Using Magna’s calculator, first determine whether your medical status and the specifics of your policy make you a good fit for a settlement.
2. Submit an in-force illustration. With the help of a Magna case administrator, you will request an illustration from your life insurance carrier that spells out what the minimum premium costs would be if you kept the policy until it matures – typically at age 100 – and if the net policy account value at maturity was $1,000. This allows us at Magna to determine how much your policy may be worth.
3. Submit additional healthcare data. At this point, you will fill out a HIPAA form protecting your privacy and submit your health data. This also helps us to determine how much your policy may be worth.
5. Wait for Magna review and informal offer. Then, your Magna representative will calculate the value of your policy and decide whether or not to make you an informal offer, pending the next steps of information gathering.
6. Magna obtains medical records and life expectancy report. These reports verify your policy value so that Magna can calculate an offer that pays out the maximum amount for your policy.
7. If your policy qualifies, Magna extends a formal offer. If you accept the offer, you will receive cash in exchange for the sale of your policy after the sale is complete. This closing process takes some time. Similar to buying a house, a life settlement involves signing contracts.
8. Magna takes over the policy. After the settlement transaction closes, Magna is responsible for paying all future premiums and receives the death benefit once the policy matures.
If you are interested in receiving a personalized life settlement estimate or have questions about the process, contact a Magna representative today.
*Comments provided in this post are for informational purposes only and should not be construed as financial, legal or tax advice, recommendations or solicitations. Please consult your financial, legal or tax professional with questions related to the information presented, or for advice as to whether a life settlement is right for you.
May 07, 2019Bethany Bradsher
Questions to Ask Yourself Before Lapsing Your Policy
For a host of reasons, insurance policies that seemed like a good idea during an individual’s middle-aged years can become a burden as that person ages. There are undoubtedly good reasons for a policyholder to shed such an unwanted policy, but what many people don’t understand is that there are other options to lapsing a policy.
If premiums have become unwieldy, or the original beneficiary of the policy no longer needs the funds because of altered circumstances, the first reaction is often to let the policy lapse. What does lapsation entail, and why should seniors consider alternatives that could result in a better financial result? Here are three key questions policyholders who are considering doing away with their life insurance policies should ask themselves:
1. Do You Need The Policy?
The first step, for an individual considering getting rid of an insurance policy, is to consider the cost and future benefit and make a thorough determination of whether that policy is still necessary. Significant changes in income or family structure, in particular, may diminish the efficacy of a policy, especially if the intended beneficiary no longer needs the payout.
2. How Are The Premiums Affecting You?
For seniors, particularly those on fixed incomes with rising health care costs, continuing to budget for insurance premiums might not be the best use of limited resources. Additionally, depending on the structure of the policy premiums can get more expensive as the years go on. Seniors who are discouraged by this burden are often tempted to just stop paying and let the policy lapse rather than considering a more profitable alternative.
3. What Are My Other Options?
Even if policy holders are convinced that they would be better off without a particular insurance policy, they could explore the option to sell their policy before letting it lapse. Lapsation removes the premium burden, but it doesn’t compensate the individual for the money paid out in premiums over the years. Rather than let a policy lapse, more and more seniors are investigating life settlements, which allow for the sale of a policy for cash. Not everyone qualifies for a life settlement, but for those who do qualify, it provides a way of unloading a policy that has become a liability. Find out if you can turn your life insurance policy into asset today by scheduling a call with a Magna life settlement specialist or trying our simple life settlement calculator.
*Comments provided in this blog post are for informational purposes only and should not be construed as financial, legal or tax advice, recommendations or solicitations. Please consult your financial, legal or tax professional with questions related to the information presented, or for advice as to whether a life settlement is right for you.
March 18, 2019Bethany Bradsher
Understanding Long-Term Care Insurance Options
Whether or not they prepared financially for it during their working years, the need for long-term care is a reality that most seniors must eventually face. Every situation is different, but most people as they age will either need long-term care themselves or find that their spouse needs it. Without proper planning, that can be a sobering truth indeed.
Long-Term Care Insurance Options for You
A 2017 study by Genworth Financial shows that long-term care, independent of medical bills, costs seniors anywhere from $18,000 a year (adult day care) to $97,000 a year (private room in a nursing home). And it’s a scenario the majority of seniors will face; about 70 percent of 65-year-olds will incur some type of long-term care costs in their lifetime, at an average cost of $138,000 per person.
For those who start thinking about long-term care resources in their ‘50s, purchasing a long-term care insurance policy could be a prudent option. But the premiums generally cost between $2,500 and $5,000 a year, and a senior will need to keep paying for the insurance after retirement. As with all insurance, it’s a gamble to theorize whether the expenditures in your younger years will be worthwhile, since no one knows how healthy their retirement years will be.
Other Options for Long-Term Care
Another option, and a relatively new product, is a life insurance policy with a long-term care rider. These policies are structured to allow for life insurance payouts when the policyholder is younger and has beneficiaries to protect, which will turn into long-term care coverage in that person’s later years. The rider accumulates the most value when entered into in a person’s ‘40s or ‘50s.
When a senior faces a dire need for long-term care, other options do exist to help fund that expense even if that individual didn’t plan for it in his earlier years. Some seniors liquidate assets like houses and cars, which they no longer need if they are moving into a care facility, to pay the bills. Others, if their assets have become depleted, can use Medicaid to help pay for continued care. But those who don’t wish to drain their resources or find themselves restricted to Medicaid-accepting facilities might find themselves in a bind with a pressing need for an alternative income source.
Life Settlements for Long Term Care Needs
Enter life settlements, in which seniors sell unwanted life insurance policies and receive a cash windfall that can be used for long-term care needs. Not every individual qualifies for a settlement, but declining health can often increase the odds that a settlement will be favorable. To learn whether you or your loved one could pursue a life settlement, try Magna’s simple life settlement calculator, or schedule a call with one of our specialists today.
January 31, 2019Bethany Bradsher
Insurance Overload: When Seniors Find Themselves with Too Much Insurance
It’s an idea reinforced from the very advent of adulthood: it’s better to have too much insurance than too little. But in the case of retirees, over-insurance is a very real possibility, and it’s a problem that can keep seniors from having sufficient resources for the costs of their golden years, expenses like medical bills, long-term care and travel.
What does it mean to have too much life insurance?
Sometimes middle-aged adults, unsure of their future needs and swayed by persuasive sales pitches, buy large policies, or several different policies, because of their fear of leaving their families with no means of support. Sometimes the amount of coverage makes sense at the time of purchase, but as the years go by circumstances change and that level of insurance is no longer needed.
Maybe your original beneficiaries no longer need the financial support they once needed in your younger years, or your family dynamics have changed. Many seniors find that they are paying prohibitive premiums, giving money they need for daily expenses to an insurance policy that isn’t actually serving them anymore. And when they are over-insured, they may come to the realization that while they still need some life insurance, they don’t need as much as they have been carrying. Even if beneficiaries might still need a payout when the policyholder dies, an overly large policy might give them more than they actually need.
Above all, seniors need to make sure that they haven’t invested in life insurance to the detriment of their own livelihoods. As one insurance blogger stated, “We all need to make provisions for our loved ones in the event of our death, but that should never be at the expense of providing for our lives. Statistically, you’re much more likely to live out your full life than to die prematurely. You will also need to provide for that!”
If you suspect you might be over-insured, schedule an appointment with a trusted financial advisor to evaluate all of your insurance holdings and their efficacy for your situation. If you have too much insurance, the next step is to investigate the possibility of a life settlement. For those who qualify, a settlement can turn a liability—excessive insurance—into a windfall of available cash for immediate retirement needs. Magna’s life settlement advisors are available to answer questions about life settlement criteria and the steps in the process.
January 22, 2019Magna Life Settlements
How Selling Your Life Insurance Policy May Help Your Retirement
Planning for your retirement can be a daunting experience. There is so much to think about, especially the amount of money you need in order to retire comfortably. Generally, the rule of thumb is that the money you may need when you ultimately retire should fall somewhere between 70 to 85 percent of your income.
To estimate how much money you may need for your retirement years, you could estimate approximately how much you would be spending in the future. There are certain expenses you probably won’t have to worry about once you’re retired, including expenses related to your children. Your mortgage may be paid off, and you may not have to worry about commuting or other work-related expenses.
At the same time, there could be new expenses, such as healthcare costs. And you may also travel more after retirement since you will have free time that you didn’t have when you were working.
You should maximize your income flow during your working years so that you can be comfortable after you retire. Following are some of the key ways to increase your retirement income.
Retirement Calculator: How to figure out your retirement score:
Social Security Benefits
Avoid withdrawing money from your Social Security benefits until at least the retirement age of 65 or 67 if you were born in or after 1960. If you continue working until 70, you will receive an additional benefit of eight percent for each year you wait to retire after age 65.
If your employer offers company benefits, you can take advantage of them and choose those that can give you the maximum income after retirement. You can choose the right investments to reflect your age and risks in a 401k plan. Be wise about when you withdraw so that you can get the most benefit from the plan.
You can use your personal savings toward your retirement income, but the better option is to make deposits to mutual funds, which can give you considerably more money in the future as they grow.
Whole Life Insurance
If you have a whole life insurance policy, borrowing against the cash value and investing the balance can give you more income when you retire.
A reverse mortgage can benefit you if you are 62 or older. It lets you free equity in your home and ensures that you don’t have to make future payments.
Finally, another good way to ensure that you can retire comfortably is to avoid the trap of debt. Be smart when using credit cards and when taking out loans. Always pay the maximum toward your balance on both in a timely manner. Avoiding getting into debt can help you enjoy full control over your finances. You can also live stress-free when your finances are in good condition. As a result, you have a better opportunity to retire with a sense of security.
January 10, 2019Magna Life Settlements
Sell Your Insurance Policy and Leave a Legacy
Some older Americans find themselves looking for a way to leave a legacy and give back to their community during their retirement years. With enough money in hand for retirement and long-term costs, these seniors find that contributing their money to a charity of choice a fulfilling way to spend their retirement dollars.
For retirees who want to give their money to a good cause, a life settlement can be a large benefit because of the difference it can make for others. The sale of an unwanted life insurance policy can provide an unexpected source of income to be used for any need.
Examples of some ways life insurance proceeds can help build a legacy of generosity include:
A significant gift to a charity can go beyond its immediate impact to influence younger generations. When an individual donates money from a life settlement to a worthy cause, his children and grandchildren have an example of giving to others that they are likely to model in the future.
By liquidating a low-yield life insurance through a life settlement, a retiree can put the money into a high-return fund, directed by an advisor with an eye toward charitable giving. The fund may grow in value and make an even greater impact on selected charities.
Life settlement funds can touch the lives of family members and make memories at the same time. Some seniors choose to use their windfall for a special trip for the entire family, creating a once-in-a-lifetime experience that the family might not have enjoyed without those resources.
Some individuals pursue a life settlement because they need help making ends meet or paying for needs like medical care, but others find themselves in a comfortable financial situation and wonder if a settlement is worth pursuing. But since a settlement can help meet a charitable goal and make a difference in the lives of others, even those with plenty of money can benefit from the sale of a policy that has become burdensome.
Would you like to learn more about the endless possibilities sparked by a life settlement? Magna’s life settlement calculator will reveal whether you are a good candidate for a settlement, and a conversation with one of our specialists will help answer your questions about the criteria and the process. Contact us today.
November 26, 2018Magna Life Settlements
Skyrocketing Premiums Present Challenge For Universal Life Policy Holders
Older Americans today have many excellent reasons to pursue the sale of a life insurance policy in a life settlement, but one of the most prevalent reasons is the prohibitive cost of paying premiums. And for those maintaining a universal life policy, a recent Wall Street Journal article reports that some are paying double or even triple their original premiums because of an historic drop in interest rates.
According to the piece by Leslie Scism in the September 19, 2018 Wall Street Journal, many policyholders are finding that universal life hasn’t held up well over time, especially when a decade of low interest rates have depleted the tax-deferred savings account linked to the policies. The savings accounts are designed to offset the cost of renewing the insurance each year, but as interest rates have stayed down the accounts have been insufficient to stave off skyrocketing premiums.
The article cited one case study in which a 55-year-old had purchased a $1 million policy in 1988 with an annual premium of $12,000. By the time that individual turned 80 in 2013, the savings account was gone and the premium had jumped to $50,000 a year. In another case, an 85-year-old retired teacher was paying $30,000 a year for his three universal life policies—three times the premiums when the policies were issued.
One expert on the insurance industry, John Resnick, told the Wall Street Journal that many seniors “are sitting on a ticking time bomb, and they don’t even know it.” The article goes on to say, “Universal life is among the reasons Americans are approaching retirement in the worst shape in decades.”
Those who believe they are stuck paying exorbitant premiums while also trying to fund retirement costs like healthcare and housing must be educated about options like life settlements. Rather than surrender a policy, an individual faced with prohibitive premiums might be able to sell his policy for a much higher payout.
Seniors shouldn’t let prohibitively high premiums chain them to a policy that is doing them more harm than good. Depending on the health impairments of the insured and the cost structure of the original policy, a life settlement could yield a windfall considerably higher than the surrender value. When premiums become burdensome or the purpose for originally purchasing the life insurance policy no longer exists, a life settlement can turn a liability into an instant asset.
Providers like Magna stand ready to answer any questions seniors or their advocates may have about life settlements, and they can even access our simple life settlement calculator to determine their eligibility for a sale of their policy.
November 19, 2018Magna Life Settlements
Magna Featured on Lifetime’s Designing Spaces
Designing Spaces on Lifetime Television featured Magna Life Settlements in November! During the episode, an older couple explored the process of a life settlement, the advantages of pursuing a sale of a life insurance policy and the various ways the cash from a settlement can meet the family’s needs during their retirement years. Clay Gibson, Magna’s senior vice president for origination, shared how families can benefit from life settlements.
The Joels, who were featured on the episode, are a retired couple looking to make their golden years golden. Mr. Joel started buying life insurance shortly after the couple got married, but the premiums became too expensive and he was considering either selling or surrendering the policy.
When their daughter Donna Eichner comes over to discuss the possibility, the Joels explain the possible benefits of selling a life insurance policy. Taking a life settlement would allow them to have additional funds for their retirement years. Mrs. Joel speculates on the ways they could use the extra money generated by a life settlement, including travel plans an donating to charity.
Clay Gibson explained, “Life insurance is actually property, and it’s property that can be sold. Half a million insureds are lapsing their policy every year, and that’s half a million insureds that could have come to Magna Life Settlements and received an offer above and beyond what the insurance carrier would have paid them for their policy.”
Mr. Joel enters his information into Magna’s life settlement calculator, and after viewing the results the Joels and their daughter conclude that a settlement is the wisest choice for their family. Their daughter, Donna, said, “I know myself and siblings are well taken care of, and now my parents can do what they want to do.” For the Joels, a life settlement will take an insurance policy that had become burdensome and convert it into a financial asset.
For families who, like the Joels, are seeking to make the most of their financial situation in their senior years, Magna life settlement specialists stand ready to offer information on the benefits of life settlements. Call today to consult with a Magna specialist, or visit the FAQ section of our website for more information on the particulars and process of settlements.
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