Term Insurance Takeover: Navigating The Transition When Your Carrier Is Sold

If your term insurance carrier is sold, it's important to understand the implications and your options. Firstly, it's worth noting that insurance carriers are often referred to as insurance companies or insurers, and the term provider is usually used for hospitals and doctors who deliver healthcare services. Now, when it comes to your term insurance being sold, there are a few key points to consider:

- Understanding the impact on your policy: A change in ownership may affect the terms and conditions of your policy, so it's important to review any updates or changes to your coverage.

- Assessing your policy's convertibility: If your term policy can be converted into a permanent policy, such as whole life or universal life insurance, it may be easier to sell or transfer your coverage.

- Evaluating your health and age: Your health and age play a significant role in the value of your policy. Younger and healthier individuals may have different options compared to those with serious or terminal health conditions.

- Exploring alternative options: Before making any decisions, it's important to explore all your options. This could include maintaining your current policy, converting it, or exploring other types of insurance plans that better suit your needs.

- Seeking professional guidance: Consult a financial advisor or a licensed life settlement provider to discuss your specific situation and understand the financial and tax implications of any decisions you make.

Check if your term life insurance policy is convertible

If your term insurance carrier is sold, one of the first things you should do is check if your term life insurance policy is convertible. This is a valuable option to have, as it allows you to turn your temporary term life insurance into permanent life insurance that will not expire.

Most term life insurance policies are convertible. However, it's important to check the details of your specific policy, as some term life insurance policies are not convertible. Your policy contract should outline whether or not your policy can be converted, as well as any time limits or deadlines for doing so. If this information is not in your policy, you should contact your insurance provider to discuss your options.

The ability to convert your term life insurance policy can be especially useful if your health situation has changed since you first took out the policy, as it allows you to avoid the underwriting process and medical exam that would typically be required for a new permanent life insurance policy. Converting your policy can also help you maintain coverage if you still have dependents or outstanding debt that you want to ensure is covered.

When deciding whether to convert your term life insurance policy, it's important to consider your financial goals and budget. Permanent life insurance policies typically carry higher premiums than term life insurance, so you'll need to be prepared for a significant increase in your premiums. However, permanent life insurance also offers several benefits, including lifelong coverage, level premiums, and tax-free cash value accumulation.

If you choose to convert your term life insurance policy, you'll need to fill out some conversion forms with your insurer. There is usually no additional cost for the conversion itself, but you will need to budget for the higher premiums associated with permanent life insurance. You may also have the option to do a partial conversion, converting only a portion of your term life policy to permanent coverage, which can help manage the cost.

Understand the implications of your health and age on the settlement

Understanding the implications of your health and age on the settlement is crucial when considering selling your term insurance policy. Here are some key points to keep in mind:

Impact on Settlement Offers

Your health and age have a significant impact on the settlement offers you may receive. Generally, younger and healthier individuals tend to receive smaller payouts or may not qualify for a life settlement at all. Most people who are eligible for life settlements are at least 65 years old and often 75 or older, with a change in their health since taking out the policy.

Life Expectancy Calculation

Life expectancy calculations take into account your current health, age, and lifestyle. The older and less healthy you are, the higher the life expectancy calculation, which affects the settlement value.

Underwriting Process

When you submit your policy for a life settlement, the company will conduct an underwriting process to evaluate your health, age, and other factors. This process helps determine the value of your policy and the settlement offer they may present.

Qualifying Factors

To qualify for a life settlement, most companies require you to be over 65 years old and have a policy with a death benefit of at least $100,000. A decline in health since the time your policy was issued can also improve your chances of qualifying. However, each case is unique, and other factors may come into play.

Viatical Settlements

If you have a terminal illness, you may qualify for a viatical settlement, which is similar to a life settlement but specifically for those with chronic or terminal illnesses. Your health and age will be crucial factors in determining your eligibility for this type of settlement.

Alternative Options

If you are relatively young and healthy, keeping your term life insurance policy may be a better option than selling it. Explore alternative solutions, such as accelerated death benefit riders or long-term care riders, which can provide access to a portion of the death benefit while you are still alive.

Find a licensed life settlement provider

If your term insurance carrier is sold, you may be able to sell your term life insurance policy for cash. This is known as a life settlement.

Life settlement providers are investors or companies that purchase life insurance policies and provide a payment to the policyholder. A life settlement provider will be able to advise you on whether you can sell your term life insurance policy.

In the US, life settlement brokers and providers are required by law to be licensed. You can check with your state insurance commissioner to verify that a broker or provider is licensed.

• Abacus Settlements, LLC
• Apex Settlement Group LLC
• Berkshire Settlements, Inc.
• CCA Settlements, LLC
• Coventry First LLC
• Eagil Life Settlements, LLC
• FairMarket Life Settlements Corp.
• Habersham Funding, LLC
• Institutional Life Services, LLC
• Life Capital Group, Inc.
• Life Equity LLC
• Life Policy Traders, Inc.
• Life Settlement Solutions LLC
• LifeRoc Capital, LLC
• LifeTrust, LLC
• Lighthouse Life Solutions, LLC
• Magna Life Settlements, Inc.
• Maple Life Financial, LLC
• Montage Financial Group, Inc.
• The Settlement Group, Inc.
• Spiritus Life, Inc.
• Vespera Life, LLC
• Harbor Life Settlements
• Suncrest Benefits
• Lighthouse Life

Meet the qualifying factors and take a health questionnaire

It can be unsettling to learn that your term insurance carrier has been sold or is transitioning to new ownership. It is important to understand what this means for your policy and what actions you may need to take to ensure you still have the coverage you need. One of the first steps you should take is to assess whether you meet the qualifying factors for a new term insurance policy and complete a health questionnaire to determine your eligibility:

Meet the Qualifying Factors:

• Age: Term insurance policies typically have age restrictions, and most carriers will set an upper limit for new applicants. Make sure you fall within the acceptable age range; this information should be readily available on the carrier's website or marketing materials.
• Residency: Your residency status and location can impact your eligibility. Insurance carriers may have specific regions or states where they offer coverage. Ensure your state of residence is covered by the new carrier.
• Occupation and income: Some carriers may have eligibility criteria based on your occupation and income level. They may assess whether your occupation falls into an acceptable risk category and if your income meets their minimum requirements.
• Family health history: While your own health is a significant factor, some carriers may also consider your family health history. They might inquire about any history of critical illnesses or premature deaths in your immediate family members.
• Lifestyle factors: Insurance carriers often assess lifestyle factors that can impact your health and longevity. These may include your smoking status, alcohol consumption, participation in hazardous activities or sports, and foreign travel plans to high-risk areas. Make sure you meet their criteria for these factors.

Take a Health Questionnaire:

After confirming you meet the basic qualifying factors, the next step is to complete a health questionnaire. This is a comprehensive assessment of your current health status and medical history. It helps the insurance carrier evaluate your level of risk and determine the terms of your policy, including any exclusions or riders that may be necessary:

• Provide detailed medical history: Disclose any past or current medical conditions, surgeries, hospitalizations, or significant illnesses. Be transparent about any ongoing treatments or medications you are taking.
• Discuss family medical history: Beyond the initial assessment, provide details about any hereditary or genetic conditions in your family, such as heart disease, cancer, or diabetes. Carriers will consider these when assessing your overall risk profile.
• Undergo a medical exam: Some carriers may require a medical exam, including blood work and urine tests, to verify your current health status. This may be especially relevant if you are applying for a larger policy amount.
• Disclose hazardous activities: If you engage in activities like scuba diving, skydiving, or even frequent travel to risky areas, be sure to mention these. They can impact your eligibility or result in policy exclusions.
• Authorise access to medical records: Carriers may request your permission to access your medical records directly from your healthcare providers. This allows them to verify the information you've provided and identify any undisclosed conditions or concerns.

Meeting the qualifying factors and honestly completing the health questionnaire are crucial steps in obtaining a new term insurance policy. They help ensure you secure the coverage you need, and they provide the insurance carrier with an accurate assessment of your health and risk profile. Remember, it's always best to be transparent and detailed when providing information to your insurance carrier to avoid future complications or disputes.

Understand the tax implications

The tax implications of selling your term insurance policy depend on several factors, including the type of policy, the amount of money received, and your tax filing status. Here are some key points to consider:

• Tax Basis and Capital Gains: The money received from selling your term insurance policy may be subject to income tax. The difference between the amount realised from the sale and your tax basis in the policy will typically be subject to tax. Your tax basis is generally the total amount of premiums you have paid for the policy.
• Ordinary Income vs. Capital Gains: The nature of the gain you must report on the policy sale depends on the cash surrender value of the policy. If your policy has no cash surrender value, the entire gain will be taxed as a capital gain. If the policy has a cash surrender value, the amount of sale proceeds exceeding your basis in the policy will be treated as ordinary income up to the policy's cash surrender value, and any excess will be treated as capital gain.
• Viatical Settlements: If you sell your term life insurance policy due to a chronic or terminal illness, it is known as a viatical settlement. In this case, the sale proceeds will be taxed as if the life insurance company had paid the death benefit, which is usually tax-free.
• Life Settlement Taxation: If you sell your term life insurance policy on the life settlement market, the transaction is treated as the sale of a pure insurance asset (resulting in ordinary income) and the sale of an investment asset (resulting in capital gain). The basis is adjusted by reducing it by the amount of premiums that covered the cost of insurance at the time of sale. The difference between the sale amount and the adjusted basis is the taxable gain. The difference between the cash surrender value and the original basis is ordinary income, and the remaining gain is capital gain.
• Tax Cuts and Jobs Act (TCJA): The TCJA has simplified the tax treatment of life settlements. It increased the estate tax exemption and removed the requirement to reduce the policy's basis by the cumulative cost of insurance charges, resulting in lower taxable gains for policy sellers.
• Consult a Tax Professional: It is essential to consult with a tax advisor or financial professional to understand the specific tax implications of selling your term insurance policy. They can guide you based on your unique circumstances and help you minimise your tax liability.

Frequently asked questions