A life settlement is the sale by the life insurance policy owner to a third party, usually an institutional investor like a private equity fund, for an amount greater than the cash surrender value of a policy but less than the death benefit. Life settlements were first recognized as legal by the United States Supreme Court in 1911 in its decision in the case of Grigsby vs. Russell.

For years, retired seniors who no longer want, can’t afford or don’t need their policies thought they had no choice other to let their policies lapse or just accept a payout of the surrender value. Finally, individual’s trusted advisors such as financial consultants, CPAs and attorneys are becoming aware that an individual’s life insurance is personal property and in some circumstances the policies can be sold to third parties for several multiples of the cash value of the policy.

Even term policies with conversion rights are often marketable and can be sold. So, consumer awareness is on the rise. Life settlements are attractive to a market of institutional advisors simply because insurance policies offer institutional investors the potential to generate a competitive return.

The concept of life settlements is relatively simple. A policyholder sells his/her insurance policy for an amount which is very often several multiples of the cash value of a policy to an investor. The institutional investor, based on their projections on how long a policyholder will live, is willing to pay an amount that compensates the policyholder at a much higher rate than just receiving the policy’s cash value but less than the death benefit.

So, the investor considers the cost of purchasing the policy plus the likely ongoing costs of keeping the policy in force until the policyholder dies and if that total cost is less than the death benefit then the investor, for an acceptable rate of return is willing to purchase the policy.

Sale proceeds from life settlements are taxable at different levels. The cost basis of the policy-the amount paid by the policy holder- is tax free. However, amounts in excess of the cost basis are subject to tax. There is some pending legislation being considered by the U.S. Congress to change the rules allowing all the sales proceeds from a life settlement to be tax free.

There are no upfront fees, credit score or income level requirements. There is also no obligation to accept contingent offers in the process. So, getting to know whether there is a market to purchase your policy and under what terms really is at no risk or cost to you.

1. Do you have a life insurance policy that is costing you more than you can afford to pay?

2. Have your needs for the policy changed?

3. Does it make sense to cash out the policy in a life settlement to receive a lump sum and no longer have to pay the premiums?

We can help. Call today! (248) 752-6480

Dan Penning Penning Group-Strategic Advisors