Can a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy) be Used to Remove a Life Insurance Policy From One’s Estate?

Can a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy) be Used to Remove a Life Insurance Policy From One’s Estate?

For the individual who will not live more than three years, a transfer of an existing policy to an irrevocable trust or a third person will be ineffective to avoid inclusion of the policy in the gross estate at death. For example, an individual who owns a $500,000 life insurance policy on his life and whose estate is in the 60 percent estate tax bracket will only pass on $300,000 to the beneficiaries of the…

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Special Rules to Know Before Engaging a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Special Rules to Know Before Engaging a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Since a variable life insurance product is treated as a security, the settlement of a variable life insurance policy is subject to Financial Industry Regulatory Authority (FINRA) best practices standards that apply to broker-dealers and registered representatives. The five primary areas of concern that FINRA identified for its members engaging in settlements of variable life policies include: (1) suitability; (2) due diligence; (3) best execution; (4) training and supervision; and (5) compensation. As a result…

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What Types of Life Insurance Policies can be Sold for Cash?

What Types of Life Insurance Policies can be Sold for Cash?

Single life policies are generally much more attractive to viatical and life settlement providers. A viatical settlement of a survivorship policy is unlikely due to the fact that both insured’s would have to be terminally ill or have very short life expectancies. The life settlement market for survivorship policies isn’t much better, because the settlement companies have to wait until the death of the second insured to collect the death proceeds. Both insureds would need…

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5 Considerations to Consider Before You Enter Into a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

5 Considerations to Consider Before You Enter Into a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Planners and insureds who are contemplating life settlements or viaticals should also take the following into consideration. This will ensure that the best possible decisions will be made in regards to policy decisions. These considerations are: Confidentiality and beneficiaries – Most companies stress the confidential nature of the transaction but they require the named beneficiary to release any possible claim to the proceeds. If the insured does not want the beneficiary to know of the…

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7 Factors That Will Determine the Amount of a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

7 Factors That Will Determine the Amount of a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

The amount of the settlement that is received will be impacted by the following factors. Understanding these factors will help you make decisions regarding your policy, and if it is advisable to sell it: The insured’s life expectancy – The shorter the period until the insured is expected to die, the more the settlement company will pay. The period in which the company can contest the existence of a valid contract must have passed –…

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Alternatives to Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Alternatives to Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

It is important for insurance planners to do all they can to protect their clients who may be contemplating entering into a viatical or life settlement. First, however, there needs to be a decision about whether or not the policy needs to be sold and whether any of the below alternatives might be in the client’s best interest. Withdraw or borrow cash values – Permanent type policies such as whole life, variable life, universal life,…

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Tax Implications of Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Tax Implications of Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

To The Seller As a general rule, anytime a life insurance policy is sold to an unrelated third-party investor, the proceeds are taxed according to guidance issued by the IRS in 2009. This guidance will generally govern the taxation of life settlement proceeds. However, as is discussed later in this section, a couple of major exclusions apply that may exempt part or all of the proceeds from taxation, and these exclusions will typically apply to…

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Disadvantages of Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Disadvantages of Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Unless otherwise noted below, viatical and life settlements share many of the same disadvantages. Knowing them will help you make the most educated choices regarding your policy, and whether or not is advisable for the policy to be sold: Reduced total payout for dependent spouse and children – once the policy is sold, it will no longer pay a tax-free death benefit to the insured’s surviving spouse and children. Thus, the primary disadvantage of a…

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Advantages of Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Advantages of Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

Viatical Settlements The principal advantage is that terminally ill or severely chronically ill insureds can receive advanced payments on policy death benefits potentially free of income tax. If the insured is terminally ill, he can use the proceeds for virtually any purpose desired. For example, insureds may desire to use the proceeds to: cover out-of-pocket medical expenses; finance alternative treatments not covered by existing medical insurance; purchase a new car or finance a dream vacation…

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When to Consider a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

When to Consider a Viatical or Life Settlement (Sale of an Unwanted Life Insurance Policy)

The emotional stress of dealing with one’s own impending death due to a terminal or serious chronic illness is further compounded by the customary increase in medical bills and the additional costs of special care in conjunction with a likely reduction in earning capacity. A viatical settlement may make sense for an insured in this situation if: the policy owner is in need of cash to pay medical or other expenses of the insured; and…

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