#97 – Stocks, bonds, real estate, cars, jewels, or any other asset — if you don’t need it anymore, you might sell it.
Life insurance policies are no different!
You can get your policy appraised, find the maximum value you can get for it, and sell it through a life settlement.
In this episode, Jeremy Keil speaks with Mark Mrky, a managing member with Life Insurance Settlements Inc. They explain the process of life settlements in an easy-to-understand manner and highlight the situations when selling your life insurance policy can be beneficial.
- The most common reasons why people sell their life insurance
- How to get your policy appraised
- How life settlements differ from simply surrendering a policy
- Who is life settlement for (and the types of policies that can be settled)
- And more
Everything You Need To Know About Life Settlements
1) What is a Life Settlement and Who is it For?
Life settlement refers to selling a life insurance policy in a secondary market.
Instead of returning the policy to your insurance carrier, you have third-party investors making a bid for your policy. The policy is then sold to the highest bidder.
Now, you might ask: Why can’t I simply surrender it to my current carrier?
Although your current carrier offers a “cash surrender value,” it might not always be the best price for your policy.
By letting large institutional investors bid for your policy, you can get a much higher selling price. In fact, a research by the London School of Business found that life settlement transactions, on average, received a cash value of more than four times their cash surrender value!
To qualify for a life settlement, you should have owned the policy for two years or more. It can be a universal life policy, a convertible term policy, or even a survivorship life insurance contract.
If it’s a convertible term policy, it’s important to make sure the policy is within its conversion period.
Also, life settlements are typically for people above 65.
The death benefit should be at least $100,000, with the average death benefit of a policy that goes through life settlement being around a million dollars.
2) What are the Most Common Situations for a Life Settlement?
Common reasons why you might consider selling your policy include:
- The policy is not affordable anymore: If the policy starts underperforming or the premiums get too burdensome, selling it might be the best option.
- Change in business situation: Let’s say you sold your business. As a result, some policies, like the key person insurance policy, might become irrelevant to you.
- Change in estate plan: You might sell your life insurance if your estate tax liability has decreased significantly or there is death of a beneficiary.
- Change in priority of needs: You might sell your policy to fund other priorities (paying off a debt, long-term care, etc.).
- Term policy is about to expire: With the term policy about to expire, you might lose your conversion privilege or come to the end of your current premium guarantee. That’s when you should consider a life settlement.
3) What is the Process to Obtain a Life Settlement Offer?
Selling life insurance is similar to selling a house. You get it appraised and have all potential buyers make a bid.
Appraisal estimates what your policy is currently worth.
Numerous factors can affect your sale price such as your age, health conditions, medical records, life expectancy, and future premiums.
Investors will look at these factors and make a bid to buy your policy. The policy is finally sold to the highest bidder.
Note: There is a possibility that the cash surrender value is the best price you’ll get if no buyer is willing to offer a higher price.
It can take nearly 30 days to put an offer together followed by another 30-45 days to complete the transaction.
If you’re not confident about navigating life settlements on your own, work with an experienced broker like Life Insurance Settlements Inc. (Discussed further in the next section.)
4) Why Should One Partner With a Broker?
A life settlement broker represents the seller and has a fiduciary duty to secure the best possible offer available to the client.
How do they do that? By putting providers in an uncomfortable position of being in a bidding “war” which results in driving up the purchase price — ensuring the best outcome for the client!
Plus, they have access to institutional capital through its relationships with the licensed providers that can potentially purchase the policy.
5) Are the Proceeds From Life Settlement Taxable?
The gains from a life settlement transaction are taxable.
Let’s say you have a million-dollar policy and you’ve paid $100,000 for it. That becomes your cost basis. (Assume the cash surrender value is also $100,000.)
After taking the policy to market, you sold your policy for $200,000. This means a gain of $100,000!
This is treated as a capital gain by the IRS and is taxed accordingly.
To learn more about life settlements, check out the resources below!
If you have any questions, feel free to contact us or our guest Mark Mrky using the contact information provided below!
- Life Insurance Settlement Association (LISA)
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
Connect With Mark Mrky:
Connect With Jeremy Keil:
- (262) 333-8353
- Send Us Your Questions
- Keil Financial Partners
- LinkedIn: Jeremy Keil
- Facebook: Jeremy Keil
- LinkedIn: Keil Financial Partners
- Book a call with Jeremy
About Our Guests:
Mark Mrky is a managing member with Life Insurance Settlements Inc., which is one of the most respected life settlement brokerages in the U.S. Mark began his career with LIS in 2001 and has consistently remained in the top 1% of sales in the nation. His specialty is in working with and educating senior clients, estate planners, insurance advisors, attorneys, and other financial professionals about the benefits of the Life Settlement industry. Additionally, he is featured writer for The Street on all things Life Settlements.
Results and figures presented within the above links are hypothetical, unaudited, and are intended for illustrative purposes only.
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Keil Financial Partners does not provide any tax advice. No information or results from the links should be interpreted as tax advice. Please seek guidance from a qualified tax professional for any and all tax-related matters.
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