Life Settlements

At Equitas we’re constantly searching for and discovering new ways you can do more for your clients. One way is helping them get the most value out of a life insurance policy that is no longer needed. A life insurance policy is actually an asset the same way investment portfolios or real estate are assets. Today, there is a robust market of investors looking to purchase life insurance policies that are unneeded or under-performing.

Don’t surrender, lapse, or sell a policy until you talk to us. The surrender value of a policy only represents a small portion of what it may actually be worth. There is a secondary market available to help you identify the true value of your life insurance policy. For qualified candidates holding Universal, Whole Life, Term Life and even group insurance the secondary market can help policyholders recognize substantial value for their unneeded or under-performing policies.

Use the Life Settlements Worksheet to get started

Life Settlement Worksheet EQB


People often forget that a life insurance policy is an asset the same way real estate or investment portfolios are assets. The surrender value of a policy only represents a small portion of what it may actually be worth. There is a secondary market available to help you identify the true value of your life insurance policy. For qualified candidates holding Universal, Whole Life, Term Life and even group insurance the secondary market can help policyholders recognize substantial value for their unneeded or underperforming policies.

Through a life settlement transaction, the sale of an existing policy can be made to a third party in exchange for a lump sum greater than the cash surrender value. The life settlement marketplace evolved from the viatical marketplace of the late 1980s where insureds with a life expectancy of less than two years sold their policies for cash to help pay their medical bills. Since then the marketplace has grown and evolved to accommodate insureds with life expectancies approaching 20 years. The secondary market is now fueled by institutional investors looking to diversify portfolios by investing in this non-correlated asset class. Hedge funds, pension funds and mutual funds are driving the growth and development of the market.

There are various reasons why an individual or business would want to sell a current life insurance policy:

  • Key Executives Retire (Key man insurance, Buy-Sell Agreements, etc.)
  • Privately owned business is sold or goes public (Key man no longer needed)
  • Reduced Estate Value (policy no longer needed to pay taxes)
  • Current policy is not meeting client’s performance expectation
  • Premiums are becoming cost prohibitive
  • Client needs cash for unexpected emergency

A Wharton School study found that on average a seller can realize 3.6 times the cash surrender value by entering into a life settlement.

Traditionally, policy owners had few options when it came to addressing these situations. As a result, policies lapsed or the client relied solely on the carrier to determine the value of the policy. Financial markets have created an opportunity to set a true, fair market value on these policies/assets. The advantage to your client can be a significant increase in value over surrendering the policy to the insurance carrier.

Stimulated by institutional money, investors are looking to diversify their asset portfolios and are now seeking to purchase life insurance policies in large quantities. Since these new assets are not tied to any traditional economic factors, investors deploy significant amounts of capital to this dynamic market.

ARTICLE BY MICHAEL GOTTDANK on Life Settlements featured in Senior market Advisor Magazine

Click Here for Article

Life Settlements FAQ’s

“Don’t surrender, lapse or sell a policy until you talk to us!”

What is needed to start the policy review process?

The items necessary for a policy review are an in-force ledger (solving for level premium, level death benefit and $100 cash value at age 100), a signed HIPAA release, and the last 2-5 years of medical records. The agent or broker representing the Policy owner furnishes these items to Equitas Brokerage.

Assume two weeks to gather the necessary documentation, depending on the cooperation of the physicians. Once all medical records are obtained Equitas will order a Life Expectancy (LE) report, which can take about two weeks to process. The LE, along with the documents from the policyholder is then submitted to the buyers. Each individual buyer reviews the case submission on its own merits and determines if they wish to bid. This process typically takes an additional two weeks. Once a buyer makes a bid, it is communicated to the agent who reviews it with the client. If the bid is accepted, the closing documents are prepared and sent to the seller’s representative to obtain signatures. Completed documents are then returned to the funder to complete the change of ownership paperwork. This portion of the process typically takes two to three weeks to complete. Once the carrier completes the change of ownership the funder is able to fund the sale. At this point the seller has a 15-day recession period during which the transaction can be cancelled. All monies would be returned to the funder with all ownership and beneficial rights returning to their original position. The entire process can take between six to twelve weeks.
Yes. Although each buyer has it’s own purchase criteria, Equitas Brokerage works with the entire community of buyers to market all types of policies; term life, whole life, universal life and even group insurance.
There are two criteria that determine the overall tax treatment of a settlement. It is generally accepted that if the life expectancy of the insured is less than 24 months, the proceeds are treated as a death benefit and pass tax-free to the seller. If the life expectancy of the insured is greater than 24 months, then the return of premium is returned tax free, from that point, any cash value is taxed as ordinary income. Any excess funds are taxed at capital gains rates. These are the generally accepted rules concerning settlements and should not be construed as legal, tax or financial advise. Equitas Brokerage is not authorized to provide tax advice. A tax professional should be consulted regarding any potential tax consequences.
Each situation is different and buyers continue to refine their purchase criteria making it difficult to establish an accurate number for prospective sellers. The parameters for each sale include the policy’s age, face amount, premium, whether there is cash value or outstanding loans, the issuing carrier, and the health of the insured. All criteria is treated equally, no assumptions can be made without all of the necessary information. Equitas Brokerage handles transactions in all price ranges.
Yes, Equitas Brokerage, through its Percent Placement program, can work with the buying community to find a buyer for a portion of a policy. The beneficial rights for the balance of the policy would stay intact.
Yes, some states have passed Life Settlement and/or Viatical Settlement legislation regulating how business is transacted in their state. The National Association of Insurance Commissioners, representing all 50 states has passed a model act that is under consideration in all states. Generally, a life insurance license is all that is required to facilitate a life settlement. Some states have enacted legislation to specifically regulate Viatical Settlements. Equitas Brokerage will work with you to address any potential licensing requirements.

Life Settlement Process

1.      A trusted advisor and a policyholder choose to seek a life settlement on an existing life insurance policy.

2.      Trusted advisor enlists Equitas Brokerage to conduct a thorough evaluation of the life insurance policy to determine the likelihood of a successful life settlement.

3.      If the policy is deemed a good settlement candidate, Equitas Brokerage obtains the insured’s medical records and orders Life Expectancy reports.

4.      Equitas Brokerage prepares all documentation, packages the case, and markets it to the qualified, institutionally backed settlement companies/buyers for consideration.

5.      Offers are conveyed to Equitas Brokerage who negotiates the best offer and terms.

6.      Offers are communicated to the broker and discussed with the policyholder for consideration.

7.      When an offer is accepted, the case goes into the closing phase.

8.      Upon completion of the closing documents, the owner and beneficiary designations are transferred to the buyer.

9.      Upon confirmation of the transfer, the escrow agent releases the sale proceeds to the seller.

Settlement Flow Chart

Settlement Strategies

A Straight Settlement is the sale of an existing life insurance policy where proceeds are not tied to purchasing another financial product. The seller determines the policy is no longer needed, and desires cash in exchange for the policy. The proceeds may be used for whatever purpose the seller chooses. In this instance a settlement offers an alternative to surrendering the policy for its cash value or letting the policy lapse. A settlement may return a significant increase to the seller over surrendering the policy.
The Settlement Exchange Program uses the proceeds from a life settlement to fund a new policy purchase. The new policy is not limited to life insurance and can include long-term disability, long term care insurance or an annuity. A settlement offers an alternative to a 1035 exchange since the settlement proceeds can potentially be far greater than the cash value of the existing insurance. Or a seller may choose to replace an underperforming policy with a more efficient up–to-date policy.
In a Percentage Placement transaction the insured can sell a portion of an existing policy. The balance of the policy is retained for the policy beneficiaries. A Percentage Placement transaction can be combined with an Exchange Program by selling a portion of an existing policy to pay the balance of the policy retained. The Percentage Placement represents a good option in situations where there is a need for life insurance coverage tied to a need for cash.
For individuals who may be suffering from a chronic or terminal illness and are covered by a group life plan, an absolute assignment can create individual value from the group life insurance. By assigning the beneficial rights of the policy to a buyer, the insured can create value from an often underutilized asset: their group life. These transactions are at no cost to either the employer or the employee.