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Questions and Answers

Questions and Answers

Q: What is a Life Settlement?A life settlement is the sale of a life insurance policy to a third party. The owner of a life insurance policy sells the policy for a cash payment that is less than the full amount of the death benefit – but for an amount that is higher than the cash surrender value. The buyer becomes the new owner and/or beneficiary of the life insurance policy, pays all future premiums and collects the full amount of the death benefit when the insured dies.Life insurance is an “assignable asset.” Just like your home or other assets, it can be given away, transferred to new ownership, or sold to anyone the policyholder chooses.


Q. Who qualifies for a Life Settlement?The primary target audience for Merlin Capital Group Inc., is an insured who is 70 years of age or older, is in compromised health, and has also owned the life insurance policy, with a face value of $200,000 or more, for not less than 2 years. Merlin Capital Group Inc., regardless of your current situation, will assess any submitted case for marketability.


Q: What would motivate a policyholder to sell their life policy?While Merlin Capital Group Inc., believes that not everybody may be a candidate for a life settlement, there are many situations when it can be a prudent financial decision. Examples of such situations might involve the following scenarios:

  • Policyholder can no longer afford the high premiums, and wishes to realize a payment higher than the policy’s cash surrender value.
  • The beneficiary for whom the policy was purchased is deceased
  • A key-man policy is no longer needed due to retirement or change in business structure
  • Policy owner wishes to provide cash gifts to family members
  • To provide funds for charitable giving
  • To purchase or invest in another business
  • To fund protracted litigation or attorneys fees


Q: How does the process work?

  1. An application, authorization and disclosure form is completed
  2. Attending physician statements (APS’s) and in-force illustrations are obtained
  3. An offer is negotiated using multiple funding institutions
  4. The offer is submitted for acceptance
  5. Once accepted, a contract is sent out for signatures
  6. Immediately upon receipt from the owner of documents to effect the transfer of the insurance policy, the life settlement provider shall pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a bank approved by the Commissioner, pending acknowledgement of the transfer by the issuer of the policy. The trustee or escrow agent shall be required to transfer the proceeds due to the owner immediately upon receipt of acknowledgement of the transfer from the insurer in compliance with applicable state law.


Q: What types of policies qualify for a life settlement?

  • Universal Life
  • Term Life (if convertible)
  • Whole Life
  • Variable Universal Life
  • Survivorship (any type)


Q: What general criteria are used to determine the value of a life settlement?There are many factors that are evaluated to determine the amount of a life settlement offer. Some of those factors include:

  • The gender, age and medical condition of the policyholder
  • The size of the policy; cash value; loans; ownership structure, etc.
  • Premium costs
  • Life expectancy
  • Cash surrender value


Q: What are the tax implications for the Seller?On May 1, 2009, the Internal Revenue Service (IRS) gave taxpayers guidance by issuing two revenue rulings to clarify the tax treatment relating to the surrender, sale and purchase of certain life insurance policies.Revenue Ruling 2009-13 concerns the seller’s tax liability when he/she sells an insurance policy.Revenue Ruling 2009-14 addresses the tax consequences on the buyer of a life insurance policy that is part of a life settlement.A copy of the revenue rulings may be located on the Internet at the Internal Revenue Service, United State Department of the Treasury web site Internal Revenue Bulletin: 2009-21.


Q: Is there a fiduciary obligation for professional advisors to discuss life settlements with their senior clients?We believe insurance professionals, CPA’S, registered reps, estate planning attorneys and financial advisors should make their clients aware of the life settlement option. Recent court decisions in this area point in that direction (Larry Grill, et al V. Lincoln National Life Insurance Co.)


Q: Is there an obligation that keeps my health information private?Under the privacy and information security requirements required by the Gramm-Leach-Bliley Act, all investment advisers, broker dealers and certain financial institutions must adopt policies and practices protecting the privacy of nonpublic personal information which such firms collect from their clients. Provider and broker firms have adopted privacy and information security procedures and must inform employees of the firm of the importance of maintaining the privacy of a client’s information. These provider firms must furnish clients with initial and annual privacy notices. In addition, if the firm shares nonpublic client information with third parties, (e.g. auditors, accountants, consultants, etc.) then it is necessary to enter into an agreement that provides (or include in any existing contract) that such third party will only use the information to perform the services for which they have been hired and will not reveal the information to any other parties. As a part of our due diligence, we request from our funders a copy of their most recent privacy policy and notice of informational practices.


Do You Qualify? Fill out our form today to obtain a free, no-obligation assessment of the value of your life insurance policy.


To answer all your questions about life settlements and how a life settlement can be a valuable option for you, please call us today 760-560-8290.