Frequently Asked Questions
- What is a life settlement?
- How do life settlements work?
- Do I have to sell all of my policy?
- Is there a difference between a broker and a provider representative?
- Is the provider, provider representative, or broker required to keep my information confidential?
- If I enter a life settlement contract, when will I get my money and from whom?
- What if I change my mind?
- What if I die shortly after selling my policy?
- What happens after I get my money?
- What if I don’t want to be contacted about my health status?
- How will I know who will be calling me or my contact person about my health status and how often can they call?
- Will the provider be calling my doctor to check on my health status?
- How will I know if my policy includes extra coverages like accidental death, future increases in the death benefit, or covers other family members? Do these affect my settlement?
- Are there other options available besides selling my policy?
- What other things should I know about a life settlement contract?
A life settlement is the sale of a life insurance policy or certificate issued on the life of a person, who does not have a catastrophic or life threatening illness or condition that is likely to result in death within 24 months, for a dollar amount that is less than the policy’s face value.
The person who is insured under the policy is called a "life settlor". This person is usually the owner of the policy, but does not have to be the owner of the policy.
Only the owner of the policy has the right to sell the policy.
The owner cannot sell the policy without the beneficiaries consent.
The entity that buys the policy is called a life settlement provider, additionally, there are persons called brokers or provider representatives, who help with the sale of the policy. A life settlement offers you the opportunity to receive a portion of your policy’s death benefit while you are still alive.
Most providers, provider representatives, or brokers will ask you to complete an application (including medical release forms) so that they can gather information from your life insurance company and your doctors.
All information gathered must be kept confidential and cannot be given to anyone without your written approval. If you qualify, the provider will make you an offer for your policy. The amount offered for your policy will be based on facts such as:
- How long you are expected to live
- The amount you pay for premiums
- The rating of your insurance company
- Your policy’s provisions (e.g., a waiver of premium).
If you accept the offer, you will be asked to sign a life settlement contract.
Do I have to sell all of my policy?
No. You can sell all of your policy or you can sell only a part of your policy. If you sell only a part, you will be required to assign or transfer only the part being sold. If you sell the entire policy, the provider will become the new owner of the policy.
Is there a difference between a broker and a provider representative?
Yes. Although both a broker and a provider representative will help you with the sale of your policy, there are important differences between them.
- A broker works for you.
- A broker will check with several providers to find the best offer for you.
- A provider representative works for a provider.
- A provider representative will only check with the provider that he or she works with to get you their offer.
If you use someone to help with the sale of your policy, you may want to ask whether they are a broker or a provider representative.
Is the provider, provider representative, or broker required to keep my information confidential?
Yes, any financial, medical, or personal information obtained by a provider, provider representative, or broker about you, including your family members, a spouse, or a significant other, may not be shared with anyone unless you have given written approval that the information may be shared.
Any written approval for the sharing of this information must show who may get the information and why it will be released.
If I enter a life settlement contract, when will I get my money and from whom?
The answer to this question depends on how the provider runs its business...
Some providers use an escrow agent or trustee to handle the money that will be paid to you. The escrow agent or trustee will send you the money within three business days of the date the insurance company confirms to the provider that the transfer of ownership has been completed.
If you change your mind about selling your policy, you can cancel the life settlement contract at any time up to the 15th day after you receive the money from the provider (up to 30 days in some states) .
If you change your mind, remember to arrange with the provider to have the insurance company transfer the ownership of the policy back to you. The guidelines for the rescission period will be explained in detail in the Life Settlement Purchase & Sale Agreement, which can vary on a state by state basis.
What if I die shortly after selling my policy?
If you die at any time up to the 15th day after you receive the money from the provider, the settlement contract will automatically cancel (up to 30 days in some states) .
The provider will pay the owner of your policy or beneficiaries designated by the owner in the life settlement contract any proceeds it receives from your policy, minus any money it already paid for the purchase of your policy and any premiums it paid to the insurance company to keep your policy current. The insurance company or the provider should refund any unearned premiums paid.
What happens after I get my money?
After the provider has paid the owner for the sale of the policy, they may begin calling to check on the health status of the insured.
What if I don’t want to be contacted about my health status?
If you do not want to be contacted about your health status, you may appoint an adult person or persons to be contacted on your behalf. That person must be in regular contact with you and you must give the provider their name, address and phone number. Once you give the provider this information, they may not contact you unless they have tried and have not been able to reach your contact person for more than 30 days. If you need to, you can change your contact person at any time by sending a written notice to the provider.
How will I know who will be calling me or my contact person about my health status and how often can they call?
The provider must give you the name, address, and phone number of the person who will be contacting you or your contact person(s) about your health status. If your life is expected to end in one year or less, contacts to check on your health status are limited to once every 30 days. If you are expected to live for more than one year, contact is limited to once every three months.
Will the provider be calling my doctor to check on my health status?
Some providers will use your signed medical release form to check with your doctor for updates on your health status. The medical release form tells your doctor that you've authorized the release of your medical information to the provider, their broker, or provider representative.
If you decide you do not want the provider to contact your doctor, you have the right to withdraw your medical consent in accordance with law.
How will I know if my policy includes extra coverage like accidental death, future increases in the death benefit, or covers other family members? Do these affect my settlement?
- Some policies contain extra coverage.
- You may want to contact your insurance company or agent to see if your policy contains a provision or rider providing extra coverage.
- If your policy includes a benefit for accidental death, the additional death benefit may not be included as part of your settlement. However, the additional death benefit may remain payable to your beneficiaries or your estate.
- If your policy provides future increases in the death benefit, you may want to ask how much the provider is paying you for the purchase of this benefit.
- If your policy is a joint policy, or provides coverage on the lives of other family members or anyone other than yourself, there may be a possible loss of coverage.
Are there other options available besides selling my policy?
Your insurance company may offer options, such as:
- Accelerated death benefits
- Loans
- Surrender of the policy for its cash value
- Before entering into a life settlement, you should contact your insurance company or agent to see what options are available.
What other things should I know about a life settlement contract?
Some things that may be affected if you enter a life settlement are:
- There may be a loss of life insurance coverage on your spouse or other family members, if the policy (or any riders attached to it) covers their lives.
- The amount of premiums you pay
- Policy cash values or dividends, if provided for in the policy
- A loss of other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the your policy
- You may incur tax consequences
- Your ability to receive supplemental social security income, public assistance, and public medical services including Medicaid
- The money you receive for your life settlement could be taken away from you by creditors, personal representatives, trustees in bankruptcy, and receivers in state or federal court.
- Because of the above, you should contact an attorney, accountant, estate planner, financial planning advisor, tax advisor, social services agency, your insurance company, or agent, as applicable, to find out what effect selling your policy will have on you.
