Frequently Asked Questions

Life Settlement is a legitimate and reliable option to turn your unused life insurance policy into useable cash.

Life Settlement is the sale of a life insurance policy to a third party for cash. Typically performed by individuals age 65 and older, a life settlement will always exceeds the cash surrender value of your policy, but it will always be lower than the death benefit of your policy. Learn more with our in-depth guide here.

There are a number of valid reasons to begin pursuing a Life Settlement. It is an entirely personal matter and should be carefully discussed with family and financial advisors. There are certain standards the policy and the insured must meet in order to qualify for a settlement. Let’s take a look at some of the more common reasons people choose to sell their life insurance policy. 

• Depending on the terms of the policy you own, changes in the insurance market could drive up the price of the premiums you pay. Many potential policy sellers are nearing a policy lapse, and rather than surrendering the policy back to the insurance company, they choose to make a Life Settlement. 
• Others sell their policy with retirement benefits in mind. A Life Settlement is an excellent way to supplement savings in your golden years. Not only is the premium payment eliminated, but clients often receive a large cash sum. 
• It is also a viable alternative when it comes to handling medical bills. We connect clients with providers that have assisted thousands with serious illnesses. By choosing to make a Life Settlement, clients have been able to pay off the entirety of their medical bills and build their savings. 

• Finally, as a person transitions through different stages in life, they may find that they no longer need their policy. Instead of surrendering the policy and receiving less payout, a Life Settlement could be a financially beneficial alternative if they qualify. 

There are many scenarios where a life settlement can help someone turn their insurance policy into a living benefit. Abacus is dedicated to making sure you have the knowledge and resources to help make the best decision for you. 

Viatical Settlement is the sale of a life insurance policy by a terminally ill policyholder allowing the policyholder to benefit from the proceeds while alive. The sale of a life insurance policy will always exceed the cash surrender value of your policy, but it will always be lower than the death benefit of your policy. Learn more here.

With the cost of healthcare rising, a Viatical Settlement can be a strong financial solution for those who are facing a terminal illness. Patients and their families can receive immediate funds to pay for medical care or quality of life experiences. Funds can be used to pay off bills or try alternative treatments that may not be covered under health insurance.

The Death Benefit of a life insurance policy is the cash payout a beneficiary(s) receives when the insured individual dies.

A Retained Death Benefit (RDB) is a life settlement option that allows a policy owner (seller) to retain a portion of their life insurance policy’s death benefit, for the beneficiary of their choice, in lieu of receiving a cash only lump sum settlement (a typical life settlement offer).

Abacus Life is more than a life settlement company. We work with each client on an individual basis to provide options based on their unique situation. In addition to settlement options, we are proud to offer Retained Death Benefit (RDB) options. This is a great option for individuals looking to eliminate expensive premium payments while keeping a portion of their life insurance coverage.

The 3 main types of life insurance policies are Universal, Whole Life, and Term Life.

Universal Life – Universal life insurance is permanent life insurance with an investment savings element and low premiums similar to term life insurance. Most universal life insurance policies contain a flexible premium option. However, some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums).

Whole Life – Whole life insurance provides coverage for the life of the insured. In addition to providing a death benefit, whole life also contains a savings component where cash value may accumulate. These policies are also known as permanent or traditional life insurance.

Term Life – Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the policy to terminate.

There are many different types of Universal, Whole, and Term Life Insurance policies out there to choose from, each with its own benefits based on the amount of coverage needed, the amount a policyholder is looking to spend on premium payments, investment strategies, and more.

For more information on life insurance types, visit Investopedia.

A life insurance policy “illustration” is a set of projections, prepared by the actuarial department of the insurance company. It shows how a policy will perform over its lifetime, including financial projections for each year. For term policies, projections extend to the end of the policy’s term and then end. For permanent life insurance policies, projections extend well beyond your 100th birthday.

A projection typically shows the current and maximum premiums for each year; total premiums paid up to that year; and each year’s death benefits. If your policy has “re-entry” provisions for certain years — requiring you to qualify for the benefits through a physical exam, for example, there are columns telling you the premiums if you passed (“re-entered”) or failed the company’s medical requirements.

The 3 factors that affect eligibility are:

Age / Health: The majority of individuals who sell their life insurance policy are 65 years of age or older or have a serious medical condition (terminally ill)

Policy Type: Universal, Whole-Life and Convertible-Term Policies are all eligible for life settlement.

Policy Size: The value of your policy must be 100k or larger to quality for settlement options.

Learn more with our in-depth guide here.

People age 65 and or older are often eligible to sell their life insurance policy as long as the face value of the policy exceeds $100,000. The most commonly sold types of life insurance are universal life insurance policies and other permanent policies (like whole life), but there are a variety of additional types of life insurance policies that can be sold.

Learn more with our in-depth guide here.

There are many reasons an individual may choose to sell their life insurance policy.

High Premiums: Premiums are more expensive the older an individual becomes. If you are on a fixed income during retirement or have unforeseen medical expenses, it can make paying high premiums to seem impossible. The first thought you may have it to stop paying premiums altogether and allow your policy to lapse. You will always receive more money from the settlement than by surrendering a life insurance policy.

It’s No Longer Needed: When beneficiary(s) are no longer dependent on making a claim to continue their lifestyle when an insured individual dies, it can make more sense to sell your policy in order to have useable cash now rather than keep your policy active.

Extra Income: For retirement, for medical expenses, whatever the reason may be, many individuals find they need extra income in their golden years. Selling your life insurance policy can be a way to supplement income while also eliminating the need to pay high premiums.

Term Policy Expiration: Many term policies do not offer a cash value at expiration, and renewal costs can be high. An alternative to allowing your term policy to expire is to convert it into a universal life policy and sell it for cash. This allows the insured individual to receive a cash benefit at the end of their policy’s life when they feel life insurance is no longer needed.

Learn more about reasons an individual may choose to sell their life insurance policy here.

Application: Start by filling out an online application here, or call to speak with one of our Life Settlement Specialists at 1 (800) 561-4148 to get started. You will be asked questions about basic personal information, health, and your life insurance policy. Medical release forms are then signed which allows Abacus Life to access your medical records and policy information. Medical release forms are required in order to accurately determine the cash value of your policy.

Documentation: Abacus Life, using the provided medical release forms, acquires your basic health and life insurance policy information. A doctor’s appointment may be required in order to get a medical release form.

Review: Once all required information is gathered, we will review your policy information and decide whether or not to make an offer. This is completed on an individual basis.

Offer: If an offer is made, this will be communicated to the policyholder or advisor (broker or insurance agent) as applicable.

Closing package: If an offer is accepted, Abacus Life will put together a closing package. Each life settlement closing package varies by state. The most common documents seen in a closing package includes a letter of competency (LOC), verification of coverage (VOC), life settlement contract, life expectancy reports, change of ownership form (COO), and a change of beneficiary form (COB).

Funds Transfer: The closing package has been completed and the change of ownership documents have been verified. Now your life insurance policy is owned by Abacus Life. This means that the policy owner no longer has to worry about paying premiums and your funds are on their way. Funds can be released through a single direct deposit, check, or through a series of payments over a specified amount of time (pre-determined).

Learn more with our in-depth guide here.

The value of a policy is determined based on a few factors:

• Policy Type
• Policy Face Value
• Age
• Health Status

Settlement companies use these factors to compile an offer for each policy on an individual basis. Once all factors are taken into consideration, an offer is written up.

The average payout of a life insurance sale is 4-6 times the cash surrender value of the policy. At Abacus Life, we pay a policyholder an average of 6-8 times the cash surrender value of their life insurance policy. Being a direct buyer, Abacus has created a streamlined process to make selling your policy fast while cutting out the middle man so we can pay you MORE.

To see exactly how much your policy is worth, fill out a quote request form here or call us at 1 (800) 561-4148.

Life Settlement is taxed in three ways:

• Money received from a life settlement up to the tax basis is free of income tax.
• Money received that is greater than the tax basis, but less than the cash surrender value, is taxed at ordinary income rates.
• Money received that exceeds the cash value of your policy is taxed as capital gain.

The amount of taxable income is calculated by subtracting the total amount you’ve paid in premiums, your tax basis, from the settlement amount.

Death Benefit proceeds received by Beneficiaries…

due to the death of an insured person, are not included in gross income and you do not have to report them. However, any interest you receive is taxable and should be reported as interest received.

For more information on how life insurance proceeds are taxed, visit the IRS.

NCOIL Model Act: NCOIL writes Model Laws in insurance and financial services and works to preserve State jurisdiction.

View the NCOIL Model Act Here.

 

Senior Health Planning Account Act: This bill allows tax-exempt senior health planning accounts to be funded using a taxpayer’s gains from the sale or assignment of a life insurance contract.

View the SHPA Act Here.

 

Regulations vary by state. See your state’s regulations on life insurance settlements to see what regulations affect you.

Most states regulate the length of time a policy must be owned until it can be sold, agent and broker licensing requirements, disclosure of offers, taxation and alternatives. This is all done in order to protect policyholders.

In addition to state regulations, The Life Insurance Settlement Association (LISA) monitors best practices among life insurance agencies, acting as a governing body.

Visit LISA here.

When a policyholder decides to sell their life insurance policy, there are a few things we recommend they do before making a final decision.

1. Do Your Research
   • Start by researching each company you are considering working with. Look at the bottom of their website to see if they are a direct buyer, broker, or marketing office. Marketing Offices are required to make this distinction at the bottom of their website. The reason why this is important is PRIVACY. When you work with a Marketing Office, they often pass your personal information on to other companies in order to acquire multiple bids. By researching each company before requesting a quote, you can guarantee that your private data is kept safe.
2. Take notice of how you are treated
   • Pay attention to how you are treated throughout the quote and offer processes. Selling your life insurance policy requires a long-term relationship. If you choose to sell your life insurance policy, you will need to maintain communication with the buyer you have chosen until the insured individual passes away. If a company is putting excessive pressure on you to sell, using tactics that do not align with your best interest or are difficult to get in contact with, this behavior is likely to continue throughout the years.
3. Remember you are not obligated to sell your policy
   • When you request to see what your life insurance policy is worth, remember that you are not obligated to sell your policy, but it is a choice. If you are too young or very healthy, we may recommend waiting a few years before selling your policy to receive a higher payout. At Abacus, we provide complete transparency regarding how we came to each offer.
4. Know who will own your policy
   • Depending on who you choose to work with, you may receive multiple offers from many different companies that are interested in purchasing your life insurance policy. Marketing Offices are not authorized to purchase a life insurance policy. Their only job is to refer you to policy buyers and will hand off the transaction after you submit your personal information. Make sure that you know WHO the buyer will be so that you can stay in contact with them throughout the life of the policy.

Learn more with our in-depth guide here.

Getting started is simple!

The first step is to get qualified. See if you qualify to sell your life insurance policy by filling out our simple online calculator or call to speak with a settlement specialist at 1-800-561-4148

Life Settlement is taxed in three ways:

• Money received from a life settlement up to the tax basis is free of income tax.
• Money received that is greater than the tax basis, but less than the cash surrender value, is taxed at ordinary income rates.
• Money received that exceeds the cash value of your policy is taxed as capital gain.

The amount of taxable income is calculated by subtracting the total amount you’ve paid in premiums, your tax basis, from the settlement amount.

Death Benefit proceeds received by Beneficiaries…

due to the death of an insured person, are not included in gross income and you do not have to report them. However, any interest you receive is taxable and should be reported as interest received.

For more information on how life insurance proceeds are taxed, visit the IRS.