07 Jan A Time to Buy & A Time to Sell
A number of years ago I began working with a couple who lived in Manhattan. At the time Charles was 55 and a highly compensated executive at a mid-sized corporation. Janice was 13 years younger and worked as an illustrator for a children’s magazine. There was a big difference in their incomes as well as their ages.
Gregory purchased life insurance to ensure that when he passed on, Janice would be able to continue the lifestyle they enjoyed. Two years later, Janice was diagnosed with Multiple Sclerosis. Over a period of time, she became increasingly debilitated and needed more and more care. Care costs significantly impacted their investment portfolio as paid caregiving was the only option available to them.
After Janice died, Gregory contacted me about surrendering his life insurance. At the time he was in his late 70’s and had developed his own health issues. There seemed to be no reason to continue paying his life insurance premiums.
I proceeded to contact the insurance company and found that if Gregory surrendered his $750,000 universal life policy, the insurance company would issue him a check for $38,000 the cash surrender value (CSV).
I also contacted a Life Settlement Brokerage company to see what it would fetch on the secondary market. After providing the broker with some health information and details on the policy, I presented Charles with several offers, the best of which was $175,000. He accepted immediately and had a check within a few weeks.
Most people are unaware that their life insurance is an asset and as such can be converted to cash just like any other asset. The sale of life insurance is called a Life Settlement. Usually, the purchaser is a large company or an institutional buyer that pays the policy owner an amount on average 3 to 8 times the cash surrender value of the policy. (Term policies with no cash value and group insurance may also be sold.) In return, the buyer continues to pay the premiums and will ultimately be paid the death benefit.
The proceeds from the sale of life insurance may be subject to taxes and the potential tax liability should be discussed with an accountant before entering into any agreement to sell a policy. If the purpose of the Life Settlement is to pay for Long Term Care, a Trust & Estate attorney may be able to create a plan whereby the capital gains tax would not be triggered.
Many have found Life Settlements have become an unexpected source of cash that they can use for any purpose; additional retirement income, the joy of gifting to grandchildren now rather than later, ability to age in place, choose an upscale retirement home or pay uncovered medical costs.
For whom is a Life Settlement appropriate? Those who are over age 75 and have policies in excess of $100,000 may want to consider selling their policies rather that lapsing them. Seek a Life Settlement quote if you cannot afford the premiums, no longer have need for the insurance or just want the cash.