WHY SELL A POLICY?

Life insurance policy owners find many reasons to consider a life settlement including:

• Underperforming policies: If a policy is performing worse than originally illustrated, the process of a life settlement can be used to purchase more affordable insurance unlikely to fail.  This is useful for both trustees of ILITs and individual policy owners.
• Unneeded policies: Policies that have outlived their usefulness are excellent settlement candidates. Changes in insurance needs, divorce, estate planning goals, and/or personal finances can make current life insurance programs obsolete.  Policy owners can settle unwanted and unneeded life insurance policies and then use the proceeds for any legitimate reason.
• Business changes:  “Key person” policies can be settled when an executive leaves the company.   Insurance used to fund “buy/sell” agreements becomes a settlement candidate when the agreement dissolves or is modified.  Failing policies within pension plans can be “rescued” in some instances with a life settlement.

WHAT TYPES OF POLICIES CAN BE SOLD?

Almost any life insurance policy, or even a variable annuity, may be sold if it meets established requirements. These include:

• Whole Life (if cash value is low)
• Universal Life (Basic UL, GUL, 2nd to die, etc.)
• Variable Life (security laws may apply)
• Term Life (once converted)
• Variable Annuities (particularly those with “high water mark” death benefits”

Policies most likely to receive higher offers have the following characteristics

• The insured is a senior with a life expectancy of less than 20 years;
• The face amount is over $100,000;
• The cash value is less than 30% of the face amount;
• There are no substantial loans on the policy; and
• There is a low premium-to-face amount value ratio.
• The policy is beyond the contestable and suicide periods.

WHAT’S THE DIFFERENCE BETWEEN LIFE SETTLMENTS AND VIATICAL SETTLMENTS?

Life settlement is the sale of an unwanted or inefficient life insurance policy for an amount greater than the cash surrender value of that policy.  Often times the policy’s fair market value substantially exceeds the cash surrender value determined by the issuing insurance carrier.   A Viatical settlement usually refers to a transaction involving a chronically or terminally ill insured, usually defined as a person with a life expectancy of less than two years.  Provada only engages in life settlements.

FOR HOW MUCH WILL AN OFFER BE?

The amount of money that you will receive from selling your life insurance policy depends on a number of factors such as:

• Age
• Medical Condition
• Type of Insurance Policy
• Rating of the issuing insurance policy
• The amount of money left on the policy to be paid
• Competition for the policy

Each funding company bases its offers upon its own set of underwriting criteria.  Best offers must always be negotiated.

HOW CAN THE PROCEEDS BE SPENT?

The proceeds of a life settlement may be used for any purpose whatsoever including being a first-year dump-in of a new policy that offers the client protection at a lower ongoing cost than the settled policy would have.

WHAT HAPPENS TO THE POLICY AFTER IT’S BEEN SOLD?

All benefits and responsibilities are transferred to the institutional buyer upon the closing of a life settlement transaction. The previous policy owner has no further obligation to make premium payments, nor are the beneficiaries entitled to any of the proceeds. Typically once per year a representative of the buyer will contact a person designated by the insured (often an advisor) to confirm that the insured is still alive.

HOW ARE THE PROCEEDS OF LIFE SETTLEMENTS TAXED?

There has never been an official IRS determination regarding the taxation of life settlements. Most industry professionals and accountants believe the proceeds from a life settlement are:

• Tax-free up to the amount of premiums paid (basis);
• Taxed as ordinary income up to the cash surrender value; and
• Taxed as capital gains above the cash surrender value.

NOTE: We suggest you consult a knowledgeable tax advisor regarding tax questions.