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Can you include life insurance settlements in your estate plan?

The Floyd Law Firm PC > Legal Sen$e > Can you include life insurance settlements in your estate plan?
Legal Sen$e - The Floyd Law Firm PC

Life insurance relates to estate planning as it can provide death benefits to one’s chosen beneficiaries, and can provide convertible assets that may be helpful with an estate—allowing loved ones to attain financial support.

A life settlement is the sale of a life insurance policy to a third party. If you have a life insurance policy you no longer need, you may be able to sell it for significantly more than its cash surrender value (CSV). Such a sale can provide the policyholder with more than the CSV, and maybe even more than the premiums that were paid over the life of the policy.

Life insurance settlement companies buy policies and continue paying the premium with the expectation that they will collect the death benefit—meaning that these companies typically purchase policies from those who have life expectancies of up to 15 years, and death benefits of at least $100,000.

Life settlement options may be an alternative when someone no longer needs the coverage of their intended plan, or the policy was meant to provide death benefits to someone who predeceased the policyholder. Maybe the policy was created with the intention to pay estate taxes, but the policyholder’s estate plans may have changed. A life settlement may be chosen in the event that the coverage was meant to fund a business owner’s buy-sell agreement, and now the business has been sold. Oftentimes the settlement is considered if the premiums are no longer affordable and/or the policyholder has immediate financial needs.

These types of settlement arrangements are available in all states, and any policy type may qualify. However, buyers generally prefer universal life, guaranteed universal life, and those policies with a return of premium riders. There is greater value in policies that will not increase in cost, while there is the least interest in whole-life policies as they typically have higher maintenance costs and lower death benefits. Policies under insurance firms that are active and established – with a rating of “A” or better – are preferred by the potential buyers.

If this is something of interest to you or a loved one, to get started, find a broker or request a policy appraisal from a life settlement company. You will need to provide the policy details and allow access to your medical records. The appraisals are free, but you may incur a nominal expense for the retrieval of the medical records. Seek out multiple offers, as bids can vary widely from one company to the next.

It is a good idea to seek professional advice, and if you do receive an offer to purchase, you are under no obligation to accept it. Consulting with an attorney who is experienced with estate planning and financial paperwork can help you before you move forward. While it is typical that you will not owe taxes on the amount you receive from the CSV, reviewing your plans with a legal expert is ideal. If you are selling the policy due to financial need, consider the alternatives and weigh the best option for you and your survivors. Depending on the type of policy you have, you may be able to accelerate the terms and collect on it while you are still living.

At The Floyd Law Firm PC, we are focused on developing relationships with our clients. With more than 100 years of combined experience, our firm can craft an estate plan that truly addresses all of your needs and goals. Let us help you find the peace of mind that comes from knowing that your affairs are in order and that those you love will not have to work through the difficulty of resolving the issues of an unplanned estate.


Learn More:

Estate Planning, Wills & Trusts

Probate & Estate Administration

Revocable Living Trusts

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