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.
January 31, 2019Bethany Bradsher
The Impact of Rising COI on the Life Settlement Market
There was a time when the COI (cost of insurance) charge on a universal life insurance policy was virtually assured to stay stable. Those who purchased policies looked at historical trends and concluded that their premiums weren’t likely to go up because of an increase in COI, defined as the amount a policyholder pays to cover the value of the death benefit.
According to the Department of Financial Services a COI is the premium rate for a life insurance policy is based on two underlying concepts: mortality and interest. A third variable is the expense factor which is the amount the company adds to the cost of the policy to cover operating costs of selling insurance, investing the premiums, and paying claims.
But the landscape has changed, and universal policy owners find themselves in a season of uncertainty about COI and, consequently, the potential roller coaster trend in their premiums. In a recent presentation at a Life Insurance Settlement Association conference, QuantRes consultant Matthew Sheridan spoke about the uptick in COI and presented a model predicting which types of policies are most likely to be hit by the increases in the coming years.
According to Sheridan, his predictive model suggests that older, underpriced policies are the most likely to be hit with COI increases. It’s a trend with several different repercussions for those who sell or buy insurance policies on the life settlement market, including:
More interest in life settlements from policyholders
When COIs rise and premiums go up accordingly, seniors who are already living on a limited budget are often more likely to look into a settlement as a way to unload those premiums and bring in extra income. A life settlement isn’t the right answer for everyone, but anyone with a burdensome policy should calculate their potential eligibility for a settlement.
A movement away from universal policies
Consumers and investors alike are concerned about the stability of universal life policies due to the unpredictability of the COI increase trend. This upturn has led to more careful examination of different types of policies in search of more stable cost structures. If universal policies become less popular, the providers might respond to market forces and make moves to stabilize COI.
Our Magna life settlement experts stand ready to answer policy owners’ questions about their rising premiums and the best options for turning a burdensome policy into a needed financial windfall. To find out if the sale of your policy might be right for you, schedule a call with a Magna specialist today.
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.
December 10, 2018Magna Life Settlements
Bill HR 7203 to Allow Life Settlements to Fund Long-Term Care
A new bill being weighed by the U.S. House of Representatives would make provision for the tax-free rollover of life settlement proceeds into tax-free accounts dedicated to long-term care. The bill, H.R. 7203, was sponsored by Rep. Kenny Marchand (R-TX) and referred to the House Ways and Means Committee on November 30.
H.R. 7203, known as the Long-Term Care Account Act, would provide a significant benefit for seniors who are facing the daunting costs of long-term care. If those individuals have a life insurance policy that is no longer serving them, the bill would permit them to easily use the money from a life settlement to fund an assisted care facility, in-home care or other treatments deemed medically necessary.
The provisions of the Long-Term Care Account Act include:
Tax-free transfer of funds
The tax-free transfer of funds from a life settlement into accounts used exclusively for long-term care expenses. That money can be used for long-term care insurance or any “qualified health expenses” that a medical practitioner would recommend to treat health impairments or maintain health for retirees.
– As long as the distributions from life settlements into the long-term care accounts are used for their stated purpose, they will be exempt from any tax. If funds are used for unauthorized purposes unrelated to long-term care, those expenditures will be subject to both income tax and a 20 percent excise tax.
– If the funds distributed to the accounts from life settlements are not spent on long-term care expenses, they can remain in the account untaxed until the death of the account holder and that person’s spouse.
H.R. 7203 is a win-win for seniors
The Long-Term Care Account Act is a win for seniors looking for new revenue sources, pairing the prime opportunity of a life settlement with the pronounced need of long-term care. Rising health care costs during retirement are one of the chief reasons people over 65 investigate life settlements, and the passage of this legislation would link the two in a way that will provide tangible benefits to Americans seeking to make the most of their retirement years.
Please don’t hesitate to urge your elected representatives to support this important bill. For more information about life settlements or the pending legislation’s, you can contact a Magna representative by scheduling a call today.
December 03, 2018Magna Life Settlements
Conning Report Reviews Robust Life Settlement Year
The face value of total life settlements has increased for the second consecutive year, signaling a promising landscape for the settlement market, according to the 2018 Conning Report released in November. The report, entitled, “Continued Growth, Positive Outlook,” includes an overview of the life settlement market, an examination of the factors that drive settlements and sections covering life settlement insurer performance and the trend toward higher cost of insurance (COI).
The report, which is the thirteenth annual review and forecast of the life settlement market produced by Conning, bodes well for the future of life settlements, despite dampening trends like COI increases. Among the report’s key findings:
Volume of the Life Settlement Industry
The volume of life settlements has increased in the past year, and the growth of the market has brought increased marketing and consumer efforts from life settlement providers.
Legal and Regulatory Developments
Legal and regulatory developments, including the 2018 Tax Cuts and Jobs Act (TCJA) and favorable legislative and court decisions for consumers, have made life settlements and more accessible and profitable option for many.
The drivers that point to future life settlement growth are largely favorable, including economic, capital, consumer and industry drivers.
Life Settlement Ten Year Forecast
The ten-year forecast predicting the future of the life settlement landscape spell continued growth. The ten-year forecasts for both annual gross market potential and annual volume for new settlements both increased from Conning’s 2016 predictions.
As insurers have increased cost of insurance (COI), consumers have seen a requisite rise in premiums, and as a result, life settlement investors might see a drop in investment returns.
For more in-depth analysis of the 106-page Conning report, keep an eye on Magna’s blog as our executives weigh in on the most compelling aspects of the research.
November 29, 2018Magna Life Settlements
What Exactly Is An In-Force Illustration?
Every year more seniors realize the benefit of exploring a life settlement to get an immediate benefit from an unneeded life insurance policy. As settlements become a more popular option, consumers are realizing that they can investigate and enter into life settlements themselves if they choose, without going through an advocate. But to go through that process, they must first understand the steps of a life settlement and define the terms of the industry. One of the most important steps is obtaining an in-force illustration.
An in-force illustration might sound like a concept only understood by insurance professionals, but in fact it is quite straightforward and a critical step in the life settlement process. After a person over the age of 65 does preliminary research into a life settlement using Magna’s simple calculator or through a phone call with a Magna settlement advisor, the next step is to obtain an in-force illustration from the insurance provider and submit it to Magna.
Important facts about the in-force illustration
Projects the future costs of premiums
It projects the future costs of premiums through maturity of the policy, allowing a policyholder to accurately compare the costs and benefits of keeping a policy versus selling it in a settlement.
Comes from the life insurance carrier at the request of the life settlement provider
The in-force illustration finds the minimum premium liability until the policy matures (typically at age 100) and the net value of the policy is $1,000. Because the illustration uses current interest rates, it often produces results very different from the projections at the time when the policy originated.
It is a valuable tool for both consumers and settlement providers
Our Magna life settlement provider will schedule a call with a client, and together they will call the insurance company to request the in-force illustration. The results will inform both the client and Magna’s representatives about the suitability of a life settlement, and if the client decides to move forward the next step is a comprehensive review of the policy and an informal offer from Magna.
In-force illustrations are valuable for anyone with a life insurance policy
They keep consumers informed and eliminate unwelcome surprises if interest rates and premiums go up. But for those considered a life settlement, these illustrations are a critical step that illuminates the costs and benefits of holding onto a policy versus selling it for a cash windfall. Schedule a call with Magna’s life settlement expert today to learn more.
November 27, 2018Magna Life Settlements
Am I eligible for a viatical settlement?
You may be eligible for a viatical settlement if you have an in-force life insurance policy that you’re willing to sell in exchange for a one-time payment. There are companies that specialize in buying life insurance policies from individuals who longer need or want their policies. In such an arrangement, the viatical company becomes the owner and beneficiary of the policy, and the buyer becomes responsible for premium payments. After the sale of the policy, the original owner no longer has any obligations or claims relating to the policy. Once the insured person dies, the viatical company collects the death benefit.
Does a viatical settlement make sense?
A viatical settlement does not make sense for everyone, but for individuals in certain situations, it could provide a much-needed infusion of cash to help with medical or other expenses. If you have a life insurance policy that you’re sure your beneficiaries will not need to rely on, and you are in need of a lump sum of money, a viatical settlement might be suitable. It’s important to understand that the amount you receive in exchange for your life insurance policy can be significantly less than the policy’s death benefit. You’ll also want to discuss any potential tax implications with your tax advisor.
How is my payout determined?
Under a viatical settlement, your payout is determined by the amount of the policy’s death benefit and your expected lifespan. Generally, the longer you are expected to live, the lower your payout will be. This is because the viatical company will have a longer period during which they will make premium payments on the policy – reducing their profitability. You may be required to have a medical examination in order for the viatical company to estimate your expected lifespan.
Choosing an Accelerated Death Benefit or a Viatical Settlement
Some life insurance policies have an accelerated death benefit, which allows the insured person to receive part of the policy’s death benefit while they are still living. Eligibility is usually reserved for situations where the insured person is suffering from a terminal illness. If you’re in this situation, an accelerated death benefit may be optimal, because you are able to retain ownership of the policy while receiving financial assistance. If your policy does not have an accelerated death benefit, or if it does include one and you’re not eligible to activate it, a viatical settlement may be a better option.
Recent reforms have helped increase the popularity of life settlements, since changes to the tax code make it a more favorable option for seniors looking to convert a life insurance policy. Specifically, the March 2018 tax bill included several provisions that should change the way consumers view a potential life settlement, including:
Reduction of Taxes on Life Settlements
By allowing all premiums paid to be included as the tax basis, the new tax code evens out the fluctuations in determining the tax basis for a life insurance policy. Essentially, this provision allows a life settlement and the surrender of a life insurance policy to be treated equally from a tax perspective.
More generous exemption from estate tax
The amount of money exempt from the estate tax — previously set at $5.49 million for individuals and $10.98 million for married couples — has been doubled. Now less than 0.1 percent of all estates are expected to be subject to estate tax. This change means that many policy owners now recognize their modest estate no longer requires the tax planning provisions offered by their life insurance policy.
New tax credit for non-child dependents
Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people who adults may support, such as elderly parents, easing the tax burden on caregivers.
Higher deduction of medical expenses
For the next two years, filers can deduct medical expenses that add up to more than 7.5 percent of adjusted gross income, as opposed to the previous threshold of 10 percent. The increase in medical deductions could lead individuals to incur more medical expenses, and those costs are often paid from proceeds of a life settlement.
More government protection
Seniors considering life settlements can take comfort from more favorable tax policies as well as emerging legislation requiring disclosure of the life settlement option and otherwise protecting consumers in the market. Forty-three states currently have passed consumer protection regulations, and such laws are under consideration in other states.
Knowledge is power when deciding how to make the most of an unwanted life insurance policy, and companies like Magna Life Settlements are committed to making sure accurate information is available for those considering life settlements. With an assortment of favorable new tax provisions and a growing understanding of the benefits of settlements, seniors are better positioned than ever to make this financial decision for their retirement years.
Magna Life Settlements, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
P.L. 115-97, Section 13521(a) – By Gary A. Forster, J.D., LL.M., managing partner, and Paige L. Minch, J.D., attorney, both at Forster Boughman Lefkowitz & Lowe in Maitland, Fla.
We do our best to make sure our loved ones are cared for after we’re gone, and life insurance policies offer us one way to do that. But coming face to face with a terminal diagnosis can shift the tides and make a living benefit a better option than your loved ones collecting a death benefit.
When you sell your policy through a viatical settlement, your beneficiaries will not receive the life insurance policy payout upon your passing. Rather, the third party to whom you sold the policy becomes the owner and collects the full face value. You do, however, receive a lump sum that exceeds the cash value while you are still living and you can use that money however you see fit.