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COLUMN: What Business Owners Should Discuss With Their Tax Planners

The older and sicker the insured person, the more money you are likely to get for the policy on the life settlement market, says William Scott Page, president and chief executive of the Lifeline Program, based in Atlanta. A typical purchaser on the life settlement market would pay your company between 10 percent and 60 percent of the death benefit, Page says. Obviously, the person you’ve insured must approve such a transaction.

Life settlements are a relatively new innovation and not well-known. Legislation that governs this practice varies by state, so check with your state and see what options are available to you if you’d like to pursue it. More information is available from the Life Insurance Settlement Association.


and See the Other Point from Clark Howard:

Are you considering selling your life insurance policy to score some quick cash? The world of death futures contracts (aka viaticals or life settlements) is fraught with dangers. 
Let's say you have a $100,000 policy. Your insurer may quote the cash value of your policy as only $5,000 if you were to turn it in. But someone in the free market may offer you $15,000 or $20,000 if you sign over your rights to them. 
The company or person you sell to pays your premiums and then hopes you die in a hurry so they can reap the benefit! Your heirs, of course, will no longer get any payment upon your death. It will all go to the new policyholder.
For buyers, death futures are pitched as a way to earn a great return on your money. But one word of caution. There are untold numbers of scams in this field, and there's no way to be certain you're dealing with legit players.
For sellers, there's always the temptation to forget about the tax man. But the IRS will want a big chunk of your gains when you sell a policy. If you want to avoid this scenario, try borrowing against the policy. You can usually do so at a favorable interest rate, and the payments to service the debt are typically low. Here are some other key pointers to remember if you're considering selling your life insurance policy: 

  • Begin by finding out the cash value of your policy from your insurance company.
  • Get quotes from multiple companies who buy life insurance policies. The quotes will likely be all over the board. Don't just take the first one that comes your way.
  • Make sure you're mentally ready to sell your policy. By this Clark means be certain that you're not given to paranoia. Too often people will sell their policies and then see murderers in every shadow and behind every tree. They're worried about getting bumped off for the value of their policy.

Comments are very controversial: from excitement to rejection. Till today, most of discussions were about the personal life insurance settelement, and if it is a good idea to settle with third party company? Some people can't accept that a hedge fund "will own money on their head" so they never will agree to settle their life insurance. For them is better to surrender it to the insurance company if there is a cash value. If no cash value is accumulated, forget it?  When they needed, they had it in place and that is. 

For others, here is a freedom of choice and they will think differently and would like to consider life insurance settlement. It is an option this lately developing second market offering.  As much you are older and sicker, as more money you'll need and be able to collect from a settlement. But how much?

NAIFA abou it

"NAIFA Blog: But a life settlement is part of a STOLI transaction, isn’t it? How can NAIFA oppose STOLI but not oppose life settlements?

Gary: Yes, a life settlement is a key part of many STOLI transactions. But the critical factor in terms of determining whether a settlement is a legitimate life settlement is whether the life insurance policy that is being settled was initially purchased for a legitimate insurance purpose.

NAIFA Blog: OK, but what do you mean when you say “a legitimate insurance purpose”?

Gary: Good question. The crucial factor is whether all the rules were followed from the start, including the existence of an insurable interest at the time the policy is issued. In a typical life settlement, the policy was purchased for its intended use—to protect family members or a small business from the risk of a premature death. But after the policy is purchased, something changes in the life of the policy owner which leads her to decide that the policy is no longer needed. This could be the death of the intended beneficiary, divorce or the need for immediate cash to due to an illness or other loss. In such cases, the policy owner may decide to sell the policy to a third party. NAIFA is NOT trying to enact laws that prevent or restrict such transactions where the policy was acquired in good faith.

NAIFA Blog: Got it. But how is STOLI different?

Gary: In a STOLI transaction, the sole purpose for purchasing the underlying insurance policy is to sell it to investors—who are strangers to the insured and do not have an insurable interest in the insured’s life—after the policy’s contestability period expires. STOLI transactions are a way to get around the requirement that someone can’t take out a policy on another person’s life unless the owner has an insurable interest in the insured."

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