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How Life Insurance Settlement Works

Last Updated: November 13, 2014

Guidelines

  • Age Minimums apply
  • Policy Size Minimums apply
  • Insurance Company credit ratings apply
  • Policy in-force a minimum of 24 months
  • Typical time to complete 3-6 months

Q: What is a Life Settlement?

A: A life or viatical settlement is the sale of an existing life insurance policy to a third party investor for more than its cash surrender value, but less than its net death benefit. In exchange for paying the purchase price to the seller as well as assuming responsibility for future premiums, the buyer of the policy will own the policy and receive the full death benefit when the original insured dies.  More than 40 states regulate life and viatical settlement transactions to protect individuals that are selling their insurance policies to third party investors.

Q: What is a Medicaid Life Settlement?

A: Numerous states have introduced and passed mandatory disclosure laws to inform consumers that they have the legal right to sell their policy and convert it into a Medicaid Qualified Long Term Care Benefit Plan that is specifically used to pay for any form of Senior Care.

Q: Are there any restrictions to liquidate a life insurance policy?

A: A life insurance policy is personal property and the owner is free to transfer ownership for the highest possible value without any restrictions as it is not a loan, nor a government subsidized program, or a long term care insurance policy.

Q: Am I responsible for paying the premiums after I have settled a life insurance policy?

A: No, the entity that purchases your policy will be responsible for paying the premiums and you will be relieved entirely of that responsibility.

Q: What are the rights of a policy owner?

A: A life insurance policy is legally protected as personal property and the policy holder has the guaranteed right to manage and sell their ownership interest in a life insurance policy without limitations-- and at the highest possible value. All insurance policy owners have the following rights:

  • Name the policy beneficiary
  • Change the beneficiary designation
  • Sell the policy to another party
  • Convert the policy into a Long Term Care Benefit Plan
  • Assign the policy as collateral for a loan
  • Borrow against the policy

Q: How does a life settlement compare to other funding options for seniors?

A: A life settlement offers a lump sum payment based on the life expectancy of the life insurance policy owner and the value of an existing policy in exchange for transferring 100% of the death benefit to the buyer which is taxed as income. There are no restrictions on use of funds, no requirement for re-payment, and no upfront fees.  Click here to learn more.

About the Author

Life CareFunding Chris Orestis, CEO of Life Care Funding, is an 18-year veteran of both the insurance and long-term care industries.  A nationally known senior care advocate; he is the author of the Amazon best-seller book "Help on the Way", a legislative expert, featured speaker, columnist and contributor to a number of insurance and long term care industry publications.  Chris is a frequent guest about senior issues on national radio programs; and has also been featured in the Wall Street Journal, New York Times, USA Today, Woman's World Magazine, Fox Business News, and PBS.

A former life insurance industry lobbyist with a background in long-term care issues, he created the model to provide a funding option for middle-class people who are not wealthy enough to pay for long-term care, and not poor enough to qualify for Medicaid.

His blog on senior living issues can be found at www.lifecarefunding.com. He can be reached at corestis@lifecarefunding.com.

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