Everything You Probably Didn’t Know About Life Settlements

Most people invest in life insurance when they have jobs or extra cash that makes it possible to buy out a life policy. With so many providers out there offering a whole range of policies, it can be difficult to single out which one is going to be the best in terms of coverage for what they as individuals need. Fortunately, there are resources out there like this guide to the best life insurance options for your family in 2022 that people can check out, should they wish to, in order to get some help narrowing down their options. 

With time, though, other necessities or unforeseen events overtake the need to have a life insurance policy.

What happens when the life insurance premiums become too expensive to maintain, or the doctor diagnoses one with a terminal illness or loses one’s beneficiaries?

Some individuals facing these issues discover that paying the insurance premiums becomes an expensive venture.

How can one cope if they meet a similar situation? What do policyholders need to know about life settlements?

Know Your Life Insurance Policy Terms

Several life insurance companies offer policies with the option of cash value or cash surrender value that can sell as life settlements.

Before selling your life insurance policy, check the policy options and terms. Not all life insurance policies have cash value options.

Convertible term life, whole life, or universal life, permanent group life insurances qualify for a life settlement. Sometimes these terms can be confusing for some people, so it’ll be best to clarify with a professional likeĀ everdays.com.

Shorter Life Expectancy Attracts Higher Life Settlements

Investors prefer to buy off life insurance from insured persons approximately 65 years and above.

They include persons who are terminally ill and with a reduced life span. This group of policyholders has a shorter life expectancy.

Unfortunate as it may seem, investors want to continue paying life insurance premiums for a shorter period and benefit quicker from the death benefits.

Death Benefit Package

The death benefit amount of a life insurance increases or reduces depending on whether the insured has loans, partially withdrew monies from the policy, or increased life insurance premiums amounts.

An investor or provider will pay more for a life settlement if the death benefit is substantial, as the investor will gain from the death benefits.

Transaction Commissions

It is a good practice to use a licensed and reputable broker to gain the best life settlement for your life insurance policy.

However, note that once the investor or provider pays out the life settlement, it will attract transaction commissions.

Because of the rampant high commission received by insurance brokers in the past, the government capped the maximum rate at 30%. Some insurance brokers offer lower percentage transaction charges.

It is prudent to ask up front how much the transaction fees the broker will charge when they receive the life settlement.

Taxation on Life Settlements.

Life Settlement Taxation

Before selling your life insurance policy, it is worthwhile to consult a tax advisor to advise on the range of taxes that the settlement might attract.

The life settlements are tax-free if the tax basis (the total premium amounts paid into the life policy) is equal to the settlement.

Any payment above the tax basis and the policy cash value are qualified for income tax.

Viatical Settlements Taxation

A life insurance policy sold by a terminally ill person with a life expectancy of 2 years receives a tax-free settlement.

In most cases, cash payments cover medical bills and living expenses. The viatical settlement is the death benefit (which is tax-free) received before the individual’s death.


Are you selling your life policy to supplement your retirement savings or fund a passive income such as the Portugal retirement visa income requirement?

Whatever the reason for selling the life insurance policy, be cautious and work with reputable licensed insurance brokers and insurance companies.

We recommend that policyholders seek the direction of a financial advisor before they sell their life insurance policy.

The financial or tax advisor will advise on the States taxation policies and how much tax it will deduct from a life settlement. Shop around to get the best life settlement offer.