How does the life settlement transaction process work?

If you want to get down to the very basics, the process starts with you. Are you in a position where keeping your life insurance policy is no longer in your best interest? Maybe you’ve reached your golden years, and you’re looking to enjoy some of the many things you’ve likely had on your bucket list for so long. Your kids are grown up and have moved out, and you no longer need protection from income loss.

Maybe you’re suffering from expensive medical bills that are draining your accounts faster than you can deposit funds. Either way, every person has unique or individual circumstances that may require them to sell their life insurance. It’s a difficult decision, but also an essential one.

If You’re Set on This…

If you’ve decided that selling your life insurance is a viable option, the next step is to speak with a qualified broker or provider and see if you qualify for a settlement. Typically, a life settlement requires an insured to be at least 65 years old, but sometimes exceptions can be made in the event of terminal or severe health conditions.  Also, the insurance policy – or combined policies – must be equal to or more than $100,000, and the policy itself must meet specific eligibility requirements.

If these traits are met, the broker or provider you’re working with will collect information about the policy and about you—i.e., your medical history, what conditions you’re facing, etc. This is all designed to help the broker or provider decide how much your policy is worth. From here, things can vary depending on the person you’re working with.

If you’re speaking directly to a provider, they’re likely to complete an analysis of the policy and make you an offer, but we always encourage talking to us before going straight to a provider because we work with all major providers and allow them to compete and get you the most money possible. Going to single provider can limit the amount of bids your policy gets on the open market. If you’re happy with the offer, you’ve already moved ahead in the game. Otherwise, it might be smart to take the offer to a certified financial advisor to get ideas about what other offers may be available.

If you’re working with a broker, they’ll shop your policy around to different providers and gather information and offers from each one. They’ll then present the offers to you, and you can decide which one meets your expectations.

The Good and the Bad

Keep in mind that there are pros and cons to using either a provider or a broker. If you speak to a provider and they make you an offer, you’ll wind up right back at the beginning if you don’t like the figure they present to you. You’ll then have to speak with different providers yourself to see what their terms are, and even then, there are no guarantees. If those providers’ offers aren’t any better, it’s back to square one all over again.

A broker goes to different providers for you, saving you time, stress and energy in the process. However, as a broker works more like an agent, they get paid from the winning buyer so it is in their best interest to get the highest offer on a policy possible.

Each route is different, and each has both positives and negatives, so before going any further, think about your options with both and decide on the path that’s right for you.

The Remaining Steps

Moving along, let’s say you receive an offer and you’re happy with it. From there, the provider or broker will give you what’s called a “closing package,” which typically contains a formal letter explaining the terms of the offer, along with documents you’ll need to sign to make the offer official and complete the transaction. These documents let the insurance company know that you have accepted the offer and that you’re transferring ownership to the receiving party.

These documents are then given to the buyer, and the funds are moved into escrow. Once that period is over, and the transfer of ownership is complete, the seller receives the money they’re owed.

The First Step Is Usually the Hardest

What isn’t always simple is deciding to sell your insurance policy in the first place. There’s a lot to think about in situations like this. Yes, you’ll receive money in the long run, but your original beneficiaries won’t be entitled to any funds following the event of your passing.

Also, any difference between what you’ve paid in your monthly premiums and the total of your life insurance policy can be taxed as ordinary income. You won’t be required to pay high capital gains taxes, but you’ll pay taxes nonetheless.

This is something to consider. Do you want to get stuck worrying about a potential tax bill in your old age? Everyone is encouraged to meet with their own tax advisor to determine if a life settlement is in their best interest from a tax perspective.

A Final Decision About Selling Your Life Insurance Policy

If you no longer need or want your life insurance policy, and you’ve decided that selling it to a third party is in your best interest, call us for help. We are Harbor Life, and for years, we’ve been helping people with circumstances just like yours get the money they need in exchange for their unwanted or unneeded life insurance policies. Unlike others, Harbor Life does not charge clients fees to underwrite a policy. Our services are always free upfront and zero obligation.

Our qualified agents are waiting to speak with you today, so please give us a call. You can also visit our website for a free estimate today!

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