'Found money' for financial planning

By Thomas L. Evans

Life settlement: Noun. A financial tool used by senior policy owners and financial advisors applied to life insurance creating money in excess of cash surrender value. Also known as a "senior settlement."

A life settlement is the sale of a life insurance policy that gives a policy owner a cash settlement in excess of the current cash surrender value.

A life settlement is an innovative wealth and estate planning tool. Professional advisors throughout the country are utilizing life settlements to create capital that will empower seniors to make financial decisions that suit their needs today.

How is a life settlement 'found money?'

Most seniors are unaware that their existing life insurance may possibly be liquidated for 10 to 60 percent of the current coverage amount regardless of cash value.

How is a life settlement used for financial planning?

While the proceeds are unrestricted and can be used in any way (pleasure, vacations, etc.), most life settlements are utilized to purchase other needed financial products, such as annuities, life insurance, investments and long-term care.

What are some of the benefits of the life settlement option?

Life settlements do a number of things. They can help seniors:

fund much needed tax deferred annuities, long-term care or investments;
create more comfortable retirement years;
reduce or eliminate future life insurance premiums;
fund the purchase of a survivorship policy, if necessary;
settle personal or business debts;
maintain a lifestyle despite changes in finances or health;
activate income from an inactive asset.

They also are a more profitable alternative than surrender or lapse.

Who qualifies for a life settlement?

Any senior who is 65 or older (with some health challenges) or 75 and older with a life insurance policy that is more than two years old with a coverage amount exceeding $50,000 is qualified.

What types of policies qualify?

Almost any type of life insurance — term, universal life, whole life, survivorship or key man — can be used for a life settlement. It can be owned by an individual, trust, corporation or charitable organization.

Are proceeds taxable?

Sellers should consult a tax advisor before completing a transaction.

Key questions to determine, if appropriate:

Does the insured plan to lapse the policy?
Is there a plan to surrender the policy?
Do they need the policy?
Are they planning on retiring or selling an interest in the business?
Have estate tax needs changed?
Are the premiums affordable?

If the answers are yes, review the person's financial situation to determine if a more economical policy is appropriate or consider a life settlement.

Non-profit groups can benefit from a life settlement

Many non-profit organizations, colleges and universities have life insurance policies donated as charitable contributions. In many situations, this is "found money." Quite often the policies are sitting in inventory awaiting maturity.

There is no reason to wait. A life settlement is the perfect solution. Often, the organization is paying the premiums. A life settlement can liquidate these assets; increasing cash flow and decreasing liabilities (premium payments).

Confidentiality is maintained in all aspects of protecting the insured's medical, financial and personal information. They are never solicited.

A modern day solution to an old problem, life insurance can now be used while an insured is still living. Creating comfortable retirement years while maintaining a lifestyle despite changes in finances or health. Think of life insurance as a living asset!

Editor's note: Thomas L. Evans works for Asset Management Solutions, Inc., in Bel Air.

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