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FAQ - Life Settlement

What is a life settlement?

A senior life settlement is the sale of an unwanted, underperforming or obsolete life insurance contract by an elderly individual to a third party for an amount less than the face value, but in excess of the cash surrender value. Life settlements were created out of the need for seniors to attain access to the death benefit while still living. With a life settlement, the insured has a medically determined life expectancy of at least three years or longer.

How long have life settlements been around?

The Supreme Court case of Grigsby v. Russell (1911) established a life insurance policy as transferable property that contains specific legal rights, including the right to name the policy beneficiary, change the beneficiary designation, assign the policy as collateral for a loan, borrow against the policy or sell the policy to another party.

Why would someone sell their life insurance policy?

Some of the reasons someone would sell their life insurance policy are as follows:

  • The life insurance policy is no longer needed or wanted
  • Premium payments have become unaffordable
  • Policy is about to lapse
  • Change in estate planning needs or financial circumstances
  • Divorce or death

Is a life settlement and viatical settlement the same?

No. A viatical settlement involves insured individuals with terminal illnesses and a life expectancy of less than two years. A life settlement involves individuals usually over the age of 65 with longer life expectancies.

What is a life settlement fractional interest?

An investor obtains a fractional interest and has first priority interest in the underlying investment that is not subordinate of any lender or creditor. The investor selects one or multiple classes of Investments offered with a minimum investment per class of $25,000. On the Fractional Interest payment date (demise of insured), each class of Fractional Interest will receive (as full payment) a “Total Fixed Return”.

Why would anyone want to invest in this asset class?

Risks and returns associated with a life settlement are not correlated to the stock or financial markets, oil prices, interest rates, or other common risk factors that most investments are associated with. Your return on investment is a percentage interest of the death benefits of a life insurance policy which is the contractual obligation of highly-rated (A- and higher) insurance companies.

What is the minimum investment? Can I use my IRA or 401k or any type of qualified vehicle to fund this type of investment?

The minimum initial investment is $25,000 for a fractional interest. You have many choices for funding a life settlement investment. These range from cash to retirement accounts such as IRA (Traditional, SEP, Roth) and 401k, 403b, etc. We use a third party administrator to act as custodian for our IRA accounts. Upon opening an IRA, you would transfer/rollover funds from your existing retirement account into the new IRA. Once funds are received, the investment is then placed with your IRA account, which then owns the investment.

Can I roll my annuity into this investment?

Yes! This is quite popular with our investors as many often roll their annuities into this investment. Providing your annuity is held in your IRA account, it would be an IRA to IRA transfer and most often no penalties would apply.