A Developing Market

The Life Settlements market developed, like any other market, because there was a need and an opportunity. There was a need by those who no longer could afford their policies, or who no longer required life insurance. Large and sophisticated institutional funds were created to fulfill the need. Investment firms that formed these funds saw this as an opportunity to create a new portfolio of assets (the policies) with a predictable return on investment.

As more Buyers joined the market, bids for policies have become more competitive. More and more policies today are being purchased at true market values (a discounted present value), as opposed to the cash surrender values set by life insurance companies.

CLICK HERE FOR CASE EXAMPLES »


What is the Buyer’s Role?
In the secondary market, the investment funds bid for the rights to your policy – that is, they will place a value on your policy by looking at these factors:
• The death benefit – or the face value of the policy.
• Your age and health.
• Cash value of the policy.
• Premiums required by the policy.
• Other factors.
The Buyers bid for the right to the death benefit. If they purchase the policy, they also assume the obligations of paying the premiums. Because these investment funds are in the business to maximize their return on investment, they will naturally bid as low as possible to purchase your policy. We make sure that you receive the highest value for your policy by having many Buyers bid against one another.

What are the tax implications* of a Life Settlement transaction? In general…
  • Sale of an asset
  • Sales price – basis = gain.
  • No gain = no tax.
  • To extent gain < cash surrender value = ordinary income
  • To extent gain > cash surrender value = capital gain.

Basis = premiums less COI (cost of insurance!!)

Example:

Sales Price                            $200,000
CSV                                        $30,000
Premiums paid                         $60,000 in total for all years
COI                                         $35,000 in total for all years

          Gain = 200 – (60 – 35) = 175,000
                     Ordinary income = 30,000
                        Capital gains = 145,000

*We do not furnish tax advice.  Every situation is different, and, we encourage consulting with tax experts to review how life settlement proceeds will be affected in each individual's specific situation.

 

If you have a policy that is no longer needed, wanted, or affordable, please contact us, Today at:

973-275-1110