Following are answers to commonly asked questions about life settlements to help you better understand this important new financial resource.
Q: What Is A Life Settlement?
A: Life Settlement is the term used to describe the financial service of selling an existing life insurance policy for more than the policy's cash surrender value, but for less than the policy's face value. For a Life Settlement, the insured generally needs to be age 65 or more with a policy of $250,000 or more that has been in force for at least two years.
Q: What Is A Viatical Settlement?
A: Viatical Settlement is the term used to describe the process of selling a life insurance policy for more than the policy's cash surrender value, but for less than the policy's face value, with the added condition that the insured under the policy have a life-threatening or chronic illness. With a Viatical Settlement, age is not a factor, and the policy minimum starts at $50,000.
Q: Can I Get A Loan Using My Life Insurance Policy
Yes, you can get a non-recourse loan secured by the life insurance policy. The policy owner retains ownership, maintains a reduced death benefit and receives tax free liquidity. You can get a loan if:
- You have been diagnosed with a life-limiting cancer or other illness
- You own a life insurance policy (term, group term, whole life, etc.) of $50,000 or more
You can apply without obligation. There is no credit check, no physical examination, and there is no monthly payment to pay. The loan is paid off out of the death benefit, and the remainder of the policy, if any, is paid to the beneficiary named in the policy.
Q: How Can The Funds Be Used?
There are no restrictions on how funds from a life insurance settlement can be used. Many clients use the funds to design other estate planning programs, such as annuities, long term care insurance, or even a new life insurance policy that better suits their needs. There are no restrictions.
Q: What Specific Types And Sizes Of Life Insurance Policies can be Bought?
VSPI can handle the purchase of almost any kind of life insurance policy--including term, whole life, universal life or group policies-issued by most any life insurance company. Generally, Life Settlement policies need to be $250,000 and above. Viatical Settlements and loans, on the other hand, can be most any face amount.
Q: Are There Any Application Fees?
No, you will not pay VSPI any application fees, underwriting charges, or medical review costs to determine if your policy can be sold.
Q: How Do I Apply?
The process of selling a life insurance policy is easy and non-threatening. There are no invasive interviews or lengthy questionnaires to complete--just a simple form, tailored to comply with your state's regulations. With the applicant's permission, our professional staff then gathers medical records and insurance information to begin underwriting the case. To find an Information Form for your state, CLICK HERE.
Q: How Long Does The Process Take?
As the insurance settlement industry has expanded, so has the time required to underwrite each case. The entire process now takes approximately 6 weeks. All funds are transferred directly to the policy owner by wire transfer or overnight delivery of a check.
Q: How Is A Policy's Value Determined?
The amount paid for a policy is determined by several factors including prevailing interest rates, premium obligations, and projected life expectancy.
Q: Are The Proceeds Subject To Taxation?
Life Settlement: Your tax adviser can work with you to review the basis in the policy, the cash value, and the amount of your settlement to determine the tax liability, if any.*
Viatical Settlement: If certain tests are met under Federal law, income from a Viatical Settlement may be received tax free.*
*See your tax adviser for more details regarding your specific case. VSPI does not give tax advice and strongly recommends that policy owners consult a tax adviser on such tax issues. VSPI will work with policyholders and their financial advisers to help structure life settlements to best meet their financial and estate planning needs.
Q: Will A Life Settlement Affect My Ability To Receive Federal or State Aid?
The proceeds from a life insurance settlement may impact certain means-based entitlement programs, such as Medicaid. Other programs may not be affected. VSPI urges potential viators to consult their legal advisers or financial planners as well as their state's Department of Health and Human Services for specific guidance in this area.
Q: Is The Life Settlement Industry Regulated?
The short answer is yes. The question is hard to answer because regulation is on a state-by-state basis. For instance, some states regulate viatical settlements, but do not regulate life settlements. Other states may define both viatical and life settlements as viatical settlements, and have one body of law to cover both categories. Still other states will have separate bodies of law for viatical and life settlements. Currently, regulation, or proposed regulation, exists in over half the states. Also, the National Association of Insurance Commissioners (NAIC) has written a Model Act. The purpose of the Model Act is to encourage states to adopt uniform standards to regulate the life insurance settlement industry. VSPI encourages uniform regulation of the life insurance settlement industry, and therefore VSPI is licensed for life settlements and viatical settlements in most states.
Q: Why Should I Use VSPI?
Stability, experience and professionalism are the keys. With VSPI, you have an attorney on your side. Stephen M. Watson, Esq., brings a unique blend of legal background and client compassion to the industry. Go with the one you can trust-the one that will act with discretion and integrity. Go with VSPI.