How Life Settlements Work (for You) in Florida

A life settlement can unlock tens of thousands of dollars from an unwanted life insurance policy. So, it’s no surprise that life settlements are gaining popularity among underfunded seniors — a group that may have few other options for generating cash and improving their financial security. 

Even as life settlements move into the mainstream, these transactions continue to be misunderstood, both by consumers and financial professionals. But at its core, the life settlement is a sales transaction. If you own a qualified life insurance policy, you can legally sell it to a third-party investor for cash.

In the state of Florida, that transaction is regulated; life settlement brokers and buyers must be licensed and must comply with the state’s mandated business practices. Those laws are in place to protect all parties involved, from policyholders to insurance companies. 

In other words, life settlements are not shady deals done in dark corners. They’re fully legal and transparent. Similar to selling a home, the life settlement process involves underwriting, escrow, execution of legal documentation, and, finally, cash payment to the policyholder.

Qualifications for a life settlement 

You can generally sell your life insurance policy if you are 70 or older and the policy has a face value of $100,000 or more. Once those requirements are met, most types of life policies can be sold for cash, including term policies in certain situations. The cash proceeds can range from 15% to 60% of the policy’s face value. Notably, a life settlement will always generate more cash than the policy’s cash surrender value. Cash surrender value is the amount your insurer pays you when you give up a permanent life policy. 

You can use the life settlement proceeds for any purpose. Pay off debt, fund health care costs, pay for long-term care or use it for living expenses. You could even put the money in your investment account or spend it on a fancy vacation.

The life settlement process 

You can sell a qualified policy directly to a buyer, or you can retain a broker who negotiates the sale on your behalf. The difference is largely related to allegiances. A direct buyer represents an investor and is motivated to buy for the lowest price possible. The broker represents you and is legally obligated to serve your best interests. In practice, serving your interest means negotiating the highest sale price possible.

Your broker makes that happen by managing a competitive bidding auction for your policy. Brokers earn a commission from the sale proceeds, but the higher sale price typically covers that amount.

Life settlements can take two to four months to complete, from start to finish. That includes the collection of your medical and policy documents, preparation of a lifespan estimate, several rounds of price bidding, and the steps to close the transaction after you accept a bid. Much of the work happens behind the scenes, without your involvement. Your main responsibilities will be to review your bids, select the highest offer, and sign the closing documentation. 

As part of the closing, the insurance company will update the policy to reflect the new owner and beneficiary. The buyer is then responsible for all future premiums. 

Once those details are finalized, the sale amount is released to you, less any commissions or fees payable to the broker and other service providers. 

Considerations before pursuing a life settlement 

Life settlement proceeds can affect eligibility for needs-based programs like Medicaid. There are strategies — called spend-downs — that can address this issue, but you will need the guidance of a qualified Medicaid attorney or elder care lawyer. 

Also, life settlements are taxable to the extent the proceeds exceed what you’ve paid cumulatively in life insurance premiums. If the transaction is large enough, the added income could push you into a higher tax bracket and also affect the taxability of your Social Security. Consult with your tax advisor early on so you’re not caught off guard by any tax consequences.

Next steps to learn more about life settlements 

To learn more about life settlements, reach out to Harbor Life Settlements, a full-service life settlement company that can answer your questions, and also estimate your policy’s value for free and without obligation. Once you know the approximate value of your policy, you can sit down with your financial and tax advisors to discuss whether a life settlement can help you reach your financial goals.