Life Settlement Guide

At Abacus, our goal is to become your trusted source for information about life settlements. By providing you with up-to-date knowledge, we hope to help you understand exactly what a life settlement is.

Get a step closer to learning the value of your policy today!

One-Step Qualifier

JUMP TO

Definition

Case Studies

Eligibility

Should I Sell?

Options

The Process

Policy Valuation

Regulation

Taxation

Getting Started

Life Settlement Guide

At Abacus, our goal is to become your trusted source for information about life settlements. By providing you with up-to-date knowledge, we hope to help you understand exactly what a life settlement is.

Get a step closer to learning the value of your policy today!

One-Step Qualifier

JUMP TO

Definition

Case Studies

Eligibility

Should I Sell?

Options

The Process

Policy Valuation

Regulation

Taxation

Getting Started

What is a Life Settlement?

A life settlement is the sale of an existing life insurance policy to a licensed life settlement buyer for more than its cash surrender value, but less than its death benefit. It is a financial transaction where the owner of an unwanted life insurance policy transfers ownership and beneficiary rights to an institutional investment fund.

In exchange for transferring ownership, the insured receives a cash settlement that can often be four times greater than the cash surrender value. A life settlement is not a loan, it is a one-time cash transaction that results in a full transfer of ownership in exchange for a lump sum. The money belongs entirely to the policy seller and can be spent at his or her discretion. Life Settlements can also be in the form of a paid-up death benefit. 

In 1911, Life Insurance was deemed personal property by the United States Supreme Court. In other words, just like your house or car, you have the legal right to sell your life insurance policy. While you can choose to surrender your policy back to your life insurance company, you will only receive a portion of what your policy is worth, leaving cash on the table.

At Abacus, our goal is to become your trusted source for information about life settlements. By providing you with up-to-date knowledge, we hope to help you understand exactly what a life settlement is. We are committed to empowering policy owners with objective insight to help them make an informed decision regarding their insurance policy. Abacus has purchased over $5 billion in life insurance policies since 2004, with offers averaging 6 times the surrender value of a standard policy.

Case Studies

William, 82, of Wayne, New Jersey

William and his family decided that a policy was no longer needed for their estate plan and considered surrendering it to the insurance policy for a low payback. The policy beneficiary was William’s daughter, Amy, who decided to explore a better option: selling the policy to Abacus. With William’s age and medical history, Abacus provided a payout that was double the cash surrender amount the insurance company was offering, returning $1.2 million back to his family.

Sandra, 79, of Bakersfield, California

Sandra came to us struggling under the weight of high monthly insurance premiums. To free up capital, she considered letting the policy go, but then learned she had other choices. Through a hybrid option Abacus provides, we were able to help Sandra maintain the policy. Abacus quickly paid her premiums to keep the policy current, so her beneficiaries will still receive benefits from the policy, and Sandra received $110,000 to help with medical care and family needs.

Eligibility

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.

 

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.

Should I Sell My Policy?

In 1911, the United States Supreme Court established life insurance policies were personal property. Since then, it has been established law that your life insurance policy is just like any other asset, and you have the choice to consider how best to use it for your financial future.

Some of the most common reasons you may consider selling all or a portion of your policy include:

You Can No Longer Afford Premiums

Depending on the terms of your policy, changes in the insurance market and poor policy performance could drive up the price of the premiums you pay. Or you may have experienced an unexpected financial issue – like increased medical bills, legal issues, assisted living costs, or tax issues – that’s now stretching your budget.

 

Funds Are Needed To Pay For Medical Care Or Some Other Expense

Faced with financial changes or hardships, selling your policy to recoup the equity you’ve built over the years is a viable option to fund a large expense, such as funding assisted living or cancer treatments, paying medical bills or premiums on another existing policy.

 

You Want To Re-Invest The Equity You’ve Built To Take Advantage Of A Better Opportunity

You may want to recapture the dollars you’ve paid over the years into your life insurance policy and invest in a business, purchase a new home, pay off a debt or tax liability, purchase an income-generating annuity or take advantage of another opportunity where the equity built in your policy could better serve you.

 

Your Life Circumstances Have Changed

As we move through the various stages of life, many individuals find they simply no longer need a life insurance policy. Life changes, including divorce, retirement, the absence of an estate tax burden or your beneficiaries no longer needing the policy benefits are also reasons to consider selling a policy.

How Many Different Options Are There?

The Retained Benefit option means you would no longer pay any premiums and retain a portion of your benefit. Beneficiaries will receive a guaranteed percentage when the policy ends, but you have no further obligations or payments to make.

The Traditional option is to sell your full life insurance policy for a cash amount above the policy’s surrender value. You have no further obligations or claims to the policy, with all future premiums paid by the buyer.

The Hybrid option is a combination of two, where you would sell a portion of your life insurance policy. With this option, you receive a cash payment now, your beneficiary receives a guaranteed percentage of the benefit when the policy ends, and you have no further obligation to pay future premiums.

How Much is My Policy Worth?

Each case is specific, and there is no one-size-fits-all answer. We handle each case individually and with utmost confidentiality and sensitivity, as understanding your options will require knowledge of personal details:

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

To see exactly how much your policy is worth, we recommend you to get an estimate now using our calculator or contact us at 800-561-4148 to learn more.

Life Settlement Calculator

The Process

1

Deciding to Sell

Before making a decision, the policyholder and their beneficiaries must make the conscious decision to pursue this option. This means contacting your financial advisor or the Abacus team and looking into all alternatives to make sure that it is the most advantageous solution for you. There is no cost or obligation to accept an offer at any time.
2

Determining Eligibility

There are certain specifics that determine if an individual will qualify such as premiums, the life expectancy of the insured, and the death benefit.The information disclosed will be used by an in-house medical underwriter who will calculate the insured's life expectancy and determine how much the policy is worth at no cost to the insured.
3

The Offer

Abacus, or the chosen buyer, would then extend an offer to the insured. The offer would be more than the price, but less than the net death benefit. The buyer must be licensed in the statein which the owner of policy resides.
4

Acceptance

If the amount offered by the licensed buyer is acceptable to the policy seller, they can choose to accept the offer and request the required documents for review.
5

Contracts

At this time, the licensed buyer generates state-approved contracting documents. These documents are utilized to record the life settlement transaction as well as spell out the agreement between the seller and the purchaser. Both parties must sign and notarize the contracts.
6

Verification

Once the contracts are executed and all the required accompanying documents have been received, the verification process begins. Often completed by a third party like a law firm, this verification agent will check that all the contracting documents have been completed properly. They may also check that the policy is in full force and good standing with the insurance company. They will verify that the funds for the purchase have been put in an escrow account for the policy seller.
7

Change of Ownership

Subsequently, a request for ownership change will be sent to the insurance carrier. This ensures that the owner is changed from the current policyholder to the buyer or the financing entity that the buyer names as owner.
8

Funds Transfer

After the insurance carrier has confirmed that the purchaser is listed as the owner, the escrow agent is instructed to release the funds to the seller. The new owner is now responsible for all premiums going forward and the seller has received payment for the transaction.

This concludes the transaction and the insured is free to use the money at their discretion.

Regulations

Over the past decade, the market has become incredibly well regulated. The entire life settlement market is regulated on a state-by-state basis instead of nationally. Therefore, the responsibility falls on each state’s government to make sure that companies are behaving ethically. The majority of states do require specific licensing and practice strict oversight to ensure customer safety. Whoever you choose to work with, you should make sure they follow the correct guidelines; there are still some companies in the industry that do not operate under the appropriate licensure. Accordingly here at Abacus Life, we are proud to share that we are licensed for life and viatical settlements in many different states.

Abacus Life is currently licensed in these states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wyoming

life insurance states licensure

Life Settlement Taxation

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.

How Do I Get Started?

Simple, just reach out to us via phone, e-mail, or fill out our calculator! You’ll be supplied with an initial offer within 24 hours of contacting us, assuming you qualify.

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