Life settlements have become profitable for not only institutional investors buying life insurance policies but also for the providers and brokers that handle the life settlement transactions for policyholders as their clients. As a result, competition among life settlement investors, providers and brokers has become more intense. 

At the Penning Group, we are committed to provide the best possible advice and service to our clients concerning the life settlement process. To provide that individual service, we recognize that a life settlement may not be right for every client. Each individual case is different and we firmly believe that in order to maintain our reputation we recognize that sometimes the best decision for a policyholder may be to decline a life settlement. The client's well being is the most important thing.

In order to facilitate the evaluation process and assist a client to reach a decision with the least amount of investment of time for both our clients and our firm, we have detailed procedures in order to provide preliminary information such as the level of interest of potential investors to purchase a policy and the potential purchase price. We also believe that clients should consider the following factors when considering a life settlement.

1. Ongoing Life Insurance Needs. If the purpose of your life settlement is to take the sale proceeds and buy other life insurance you should determine the net cost effect of completing a life settlement. Most often, you will never be able to purchase a similar amount of insurance at an older age for something less than a substantial increase in premiums. If you determine you still need some insurance coverage, but maybe not at the same level, you can explore a partial life settlement for a portion of your insurance which would allow you to sell a portion of the policy and retain a portion to benefit your heirs.'

   
   
   

2. Examine Possible Alternatives to a life settlement. If the main motive to consider a life settlement is the need for cash, be aware that surrendering your life insurance policy for cash value or pursuing a life settlement may not be your only options, especially if you ideally would like to retain you insurance coverage. You may be entitled to accelerated death benefits like a viatical settlement if you are terminally ill or have a permanent illness. You may also be able to borrow money against your insurance policy. You may still decide that a life settlement is the best alternative for you, but you should be aware of your options before making up your mind.

   
   
   

3. Make Sure You are Maximizing the Value of the Sale of Your Policy. The best way to insure you are receiving the most cash for your policy is to engage a life settlement broker to navigate your life settlement through an auction process among interested investors. That is truly the best way to determine and maximize value. If you are dealing with a life settlement provider (one company offering to buy your policy), then you really need to shop around. Contact several providers to determine who will offer you the highest price. 

   
   
   

4. Possible Unintended Impact on Your Finances.  A cash payment from a life insurance settlement can have unintended financial consequences especially if your financial circumstances have changed from when you first purchased the policy. For example, if you currently receive state or federal public assistance, such as medicaid, a life settlement can negatively impact your eligibility to participate in that program.

   
   
   

5. What Impact Will a life Settlement have on Your Survivors? You should always consider the future needs of your survivors who are the beneficiaries of a life insurance policies. Even if you determine that a survivor does not currently need the death benefit payment, consider whether that situation may change?

   
   
   

6. How can I protect My Privacy in a Settlement Transaction. Before accepting any offer from a life settlement company you should carefully read any agreements or applications you are requested to fill out and sign. Make sure the company you are dealing with has procedures in place to protect against the confidentiality of your information.

   
   
   

7. What are the Transaction Costs? Make sure that you are comparing “apples to apples” when researching different companies to represent you in a life settlement. For example, life settlement providers may argue that their offers do not require the same or as high of transaction costs as a life settlement broker.However, a life settlement provider may pay a lower amount then you would receive in a brokerage process which often times, even with the transaction costs deducted, still result in your receiving a higher amount then you would have received in the no fee scenario with a provider.

   
   
   

8. What are the Tax Consequences. The lump sum you receive in a life settlement is subject to tax in various parts of the whole. First, the total amount of payments you made as premium payments is considered your basis in the life policy and therefore is not subject to any tax.Second, the amount of the lump sum which is in excess of the basis and up to the amount of the cash surrender value amount in a policy is taxed at your ordinary income tax rate. Third, any proceeds you receive in excess of the cash value amount are then taxed a capital gain tax rates.

   
   
   

9. Is the Life Settlement being Recommended to Benefit Me or My Financial Advisor. We receive many referrals from financial advisors of their clients interested in a life settlement. Some financial advisors are prohibited from receiving any direct benefit from the life settlement transaction. That being said, most individuals who receive cash proceeds from a life settlement, depending on the underlying reason the client pursued a life settlement, ends up investing at least a portion of the proceeds received with or through their financial advisor. Thus, there may be some residual benefit to a financial advisor. You should ask specific questions to your life settlement specialist and your financial advisor to identify all transaction costs and what each person involved on your behalf is receiving.

   
   
   

10. Do you feel Pressured to Make a fast Decision? If you feel that you are being subjected to high pressure sales tactics, or some other aggressive techniques, beware. A legitimate life settlement and/or financial professional will always provide clear answers to your questions and will give you ample time to make your decisions.

In summary, life settlements may make sense for people who no longer need or want their insurance policies and would otherwise surrender their policies or allow the policy to lapse which would both be less than received in a life settlement. However, always make sure you are dealing with properly licensed entities, that you are aware of confidentiality provisions , that you are getting a fair price and that you fully understand all financial/tax implications if you receive life settlement proceeds.

Call us today for a no cost/no obligation consultation.