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What are life settlements? |
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A life settlement is the sale of a life insurance policy or certificate (hereafter
referred to as policy) 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 may or may
not be the owner of the policy. Only the owner of the policy has the right to sell
the policy. If you do not own the policy, the owner cannot sell the policy without
your consent. The entity that buys the policy is called a life settlement provider
(hereafter referred to as 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.
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How do life settlements work? |
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Most providers, provider representatives, or brokers will ask you to complete an
application and 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, and 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.
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Do I have to sell all of my policy? |
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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.
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Is there a difference between a broker and a provider representative? |
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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.
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Is the provider, provider representative, or broker required to keep my information
confidential? |
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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.
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If I enter a life settlement contract, when will I get my money and from whom? |
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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.
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What if I change my mind? |
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If you change your mind about selling your policy, you can cancel the life settlement
contract at any time up to the 15th day (30 days in some states) after you receive
the money from the provider. 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.
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What if I die shortly after selling my policy? |
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If you die at any time up to the 15th day (30 days in some states) after you receive
the money from the provider, the settlement contract will automatically cancel.
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.
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What happens after I get my money? |
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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.
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What if I don't want to be contacted about my health status? |
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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.
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How will I know who will be calling me or my contact person about my health status
and how often can they call? |
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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.
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Will the provider be calling my doctor to check on my health status? |
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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 want your doctor to give 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.
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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?
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Some policies contain extra coverages. You may want to contact your insurance company
or agent to see if your policy contains a provision or rider providing extra coverages.
If your policy includes a benefit for accidental death, the additional death benefit
may not be included as part of your settlement. 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.
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Are there other options available besides selling my policy? |
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Your insurance company may offer options, such as accelerated death benefits, loans,
and 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.
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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.
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