Frequently Asked Questions

What is a life settlement?

A life settlement is a legitimate and reliable option to turn your unused life insurance policy into usable cash. 

A life settlement is the sale of a life insurance policy to a third party for cash. Typically performed by individuals aged 65 and older, a life settlement 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 using our life settlement in-depth guide. 

When to consider a life settlement?

There are several 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 that both the policy and the insured must meet in order to qualify for a settlement. Listed below are some of the most 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.  
  • Selling your life insurance is a viable alternative when it comes to handling medical bills. We connect clients with providers that have assisted thousands of people 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 various 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. We here at Abacus are dedicated to making sure you have the knowledge and resources to help make the best decision for you. Reach out to us and we will walk you through the process and all the benefits! 

What is a viatical settlement?

A viatical settlement is the sale of a life insurance policy by a terminally ill policyholder allowing the policyholder to benefit from the proceeds while still living. The sale of a life insurance policy will always exceed the cash surrender value of your policy but will always be lower than the death benefit of your policy. Learn more here. We can answer any questions you may have! 

When to consider a viatical settlement?

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. 

 

What is a death benefit?

The death benefit of a life insurance policy is the cash payout the beneficiaries receive when the insured individual dies. Read more about the death benefit and how life settlements work here.

What is a retained death benefit (RDB)?

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. Reach out to the Abacus team at (800) 561-4148; we would love to break this down further for you! 

What is a cash surrender value?

The cash surrender value of a life insurance policy is the cash payout a policyholder receives when they cancel their policy. This will always be less than the death benefit or life settlement benefit of a policy. The cash surrender value is equal to the total cash value of your policy minus the cost of any cancellation fees. 

Total cash value of policy – Cost of cancellation fees = Cash surrender value

 

What are the main types of life insurance?

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, like 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 insurance 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 specific 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 our Life Settlement Blog.

What is an illustration?

A life insurance policy “illustration” is a set of projections, prepared by the actuarial department of the insurance company. It depicts 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 both 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 showing you the premiums if you passed (or “re-entered”), or failed the company’s medical requirements. 

Can I sell my life insurance policy?

The 3 factors that affect eligibility are: 

Age / Health: Most individuals who sell their life insurance policy are 65 years of age or older or have a serious medical condition that deems them 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 $100,000 or larger to quality for settlement options. 

Learn more with our in-depth guide here. 

Who can sell their life insurance?

People aged 65 and or older are often eligible to sell their life insurance policy if 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. However, there are a variety of types of life insurance policies that can be sold. Speak with your Abacus representative to find out which option is best for you! 

Learn more with our in-depth guide here. 

Should I sell my life insurance policy?

There are many reasons an individual may choose to sell their life insurance policy. Here is a brief list of popular options why one would choose to sell their 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. Your initial thought might be to stop paying your 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 is No Longer Needed: When beneficiaries 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, to have usable 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. 

How do life settlements work?

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 to accurately determine the cash value of your policy. 

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

Review: Once all required information is gathered, we here at Abacus Life will review your policy information and decide whether or not to make an offer. This is completed on an individual basis, as each case is unique. 

Offer: If an offer is made, this will be communicated to the policyholder or advisor (your 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 include 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). We will explain it all to you every step of the way. 

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 now means that the policy owner no longer must 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 that is pre-determined. 

How much can I sell my life insurance policy for?

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 middleman 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 and an Abacus Life representative will contact you! 

How is life settlement/selling my policy taxed?

Life settlements are taxed in 3 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 have paid in premiums, your tax basis, from the settlement amount. 

Death benefit proceeds received by beneficiaries: 

Due to the death of the insured person, death benefit proceeds 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. 

How are life insurance sales/settlements regulated?

NCOIL Model Act: NCOIL writes model laws in insurance and financial services that work 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. Please 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 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 for more information. 

Should I accept a life settlement offer?

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 to acquire multiple bids. By researching each company before requesting a quote, you can guarantee that your confidential data is kept secure. 
  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 contact, 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; it is a choice. If you are too young or 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 generate each offer. We keep you informed throughout the entire process. 
  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. It is a long-term relationship; therefore, you should feel confident in who you choose to do trust to take care of your policy. 

Learn more with our in-depth guide here.

How do I get started?

Getting started is simple! We here at Abacus Life have perfected the onboarding process to life settlements. 

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. We are excited to help you begin your life settlement journey and will guide you every step of the way! 

Are life settlements taxable?

Life settlements are taxed in 3 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 have paid in premiums, your tax basis, from the settlement amount. 

Death benefit proceeds received by beneficiaries: 

Due to the death of the insured person, death benefit proceeds are not included in gross income and do not have to be reported. 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.