Thought You'd Like to See This:
Planning For A Life Settlement:
Things to Consider

Traditionally, the owner of a permanent life insurance policy had one choice when he or she wanted to cash in a policy—surrender the policy and receive the cash value.

Beginning about twenty years ago, some third party companies began to offer the owners of policies on terminally ill insureds the ability to viaticate the policy. In such cases, the viatical settlement company would make an offer to the owner to purchase the policy for a substantial percentage of the policy’s death benefit.

Since that time, the market has expanded to situations involving more healthy insureds. The focus is less on viatical settlements and more on life settlements.

From the life insurance policyowner’s perspective, when should a life settlement be pursued? In general, if the insured is older than age 60, and the insurance is no longer needed, then life settlement should be considered. From an economic perspective, life settlements tend to be more attractive if one or more of the following factors are present:

• The insured is in worse shape health-wise than when the policy was originally purchased.
• The policy has been in force for ten years or more.
• The policy has a substantial death benefit.

From the consumer’s perspective, a life settlement only makes sense when the amount received is greater than any surrender value from the contract. However, that’s not the end of the analysis. The policyowner must also consider the following:

• Keeping the policy in force, particularly where life expectancy is very short, may be a more efficient economic decision than settlement for the consumer.
• Privacy is lost as the settlement company investigates the insured’s health status.
• When the settlement company buys the policy, it will generally keep the face amount in force. The insured will lose some life insurance capacity that might be otherwise available.
• The insured will likely lose the ability to know who owns the life policy after the contract is settled.
• Taxes have an impact on how much of the settlement the policyowner can actually keep.

Earlier this year, the IRS published its stance on the tax results when a policyowner settles a life policy. In the ruling, the Service answered many of the questions that experts had been unsure about. The IRS’s answers have a significant impact on those who are—or will be—considering life settlements.

Some of our clients may have reason to consider a life settlement, and are likely to need help in evaluating whether a life settlement makes sense. We can provide professional help to shop for the best deal, weigh the risks and calculate the costs of pursuing a life settlement.

Please contact Tracy at 504-212-3440 or estateplanning@lawealthplan.com to set up an appointment with Todd or Chip to discuss tax planning or other matters of financial concern.