Planning area

Life Settlements

Your life insurance policy may be worth far more than you think. A life settlement unlocks the true market value of in-force coverage that is no longer wanted, needed, or affordable — often at greater value than the company's cash-surrender value.

Overview

Life Insurance is an asset.

A life settlement is the sale of an existing life insurance policy to a third party for a cash payment that exceeds the policy's cash-surrender value, but is less than the full death benefit. The purchaser takes ownership of the policy and assumes all future premium payments — leaving the policyowner with immediate, meaningful liquidity above what the cash surrender value was.

In practical terms, by bringing a policy to a competitive marketplace, you can receive its true market value. Like stocks, real estate, or any other financial asset, life insurance now has an open market where fair value is determined by willing buyers and sellers.

Why consider one

Circumstances change.

A policy that was essential years ago may no longer align with the current financial picture.

The policy is no longer needed, or no longer serves its original purpose.

ii.

Premiums have become unaffordable or financially burdensome.

iii.

Cash is needed to fund retirement or cover living expenses.

iv.

Medical bills or long-term care costs require immediate financial relief.

A family business has been sold, or a business partnership has dissolved.

vi.

A key employee has retired, eliminating the need for the coverage.

vii.

A spouse has passed away, and the policy no longer serves the estate plan.

Discovering hidden value

What was once considered a necessary expense is now recognized as a transferable asset with real market value.

Life settlements have fundamentally changed how advisors and their clients think about life insurance. Whether the goal is to free up cash flow, eliminate premium obligations, or restructure an estate plan, a settlement provides flexible options that weren't available in the past.

What it can unlock

Receive fair market value for a policy that would otherwise be surrendered or lapsed.

Eliminate premium payments while optionally retaining a portion of coverage.

Recoup premiums paid into the policy over many years.

Restructure cash flow to better suit current financial needs.

Fund long-term care or cover significant medical expenses.

Who qualifies

Who is an ideal candidate?

Not every policy qualifies — but many more do than most people realize. The strongest candidates typically meet the following criteria.

70+

Insured is age 70 or older. The older the insured, the greater the likelihood of success.

$500K+

A policy with a face amount of at least $500,000. The larger the policy, the more buyers will bid, driving up the price.

Health

A change in health status since the policy was originally issued. This would reflect additional value that may not be reflected in the policy's cash surrender value. Major health issues drive up the bidding process, with true value commensurate with the health issue.

If any of these apply, a settlement deserves serious consideration

The risk has passed

The policyholder has outlived the risk the policy was originally designed to address. For example, the kids have graduated from college, are married and/or financially stable.

II.

A change in people

A spouse, business partner, or key employee insured by the policy has passed away or retired and the coverage is no longer necessary.

III.

The plan has shifted

Estate-planning needs have changed, and the coverage is no longer aligned with the plan design or need. For example, the current tax exclusion allowance is sufficient to cover any existing tax liability.

How the process works

We manage every step on your behalf.

Tax Efficient Solutions, LLC acts as your dedicated broker throughout the transaction — working to ensure you receive the highest possible value for the policy through an auction marketplace. We represent you as the seller and our goal is to drive the price up — the best bid wins.

Complete a Tax Efficient Solutions inquiry package — a straightforward intake process.

We obtain all insured medical records to build a comprehensive file.

We commission life-expectancy reports from qualified actuarial firms.

We request updated illustrations from the insurance carrier.

We conduct a detailed analysis of the policy’s current market value.

We submit the package to our network of qualified buyers to solicit the highest bid.

All bids are presented to you for review and acceptance — you decide.

Upon acceptance, closing contracts are executed and final documents prepared.

Proceeds are delivered directly to you through an independent escrow agent.

Retained death benefit

Keep a portion — with no future premiums.

A meaningful cash payment today, while retaining a portion of the death benefit for heirs — with zero ongoing premium obligations. The retained death benefit option offers an elegant alternative.

Option A

The policyowner retains a portion of the death benefit in lieu of a full cash payment.

Option B

The policyowner receives a cash settlement and retains a portion of the death benefit — with no future premiums on either.

How proceeds are taxed

A favorable three-tier framework.

Federal law sorts your proceeds into three layers. Since the Tax Cuts and Jobs Act of 2017 — made permanent in 2025 — your cost basis is the full amount of premiums paid, no longer reduced by the cost of insurance, which generally means a smaller taxable gain.

Tier 1 · Return of basis

Tax-free

Proceeds up to your cost basis — the cumulative premiums you've paid — come back to you with no tax.

Tier 2 · Up to cash value

Ordinary income

The portion between your basis and the policy's cash-surrender value is taxed as ordinary income.

Tier 3 · Above cash value

Capital gains

Any amount above the cash-surrender value is taxed at long-term capital-gains rates.

+At closing you'll typically receive two forms: a 1099-LS from the buyer showing gross proceeds, and a 1099-SB from the carrier showing your reported basis.

Why it matters

The 2017 basis change means policyowners keep more of the proceeds — a higher cost basis translates directly into a lower taxable gain.

State tax treatment varies, and individual circumstances differ. This is general information, not tax advice — clients should consult their own tax advisor.

Related planning areas

Often used together.

Ready to discover what your policy is really worth?

Let's review the opportunity together.

Whether you are evaluating an underperforming policy, a client approaching retirement, or coverage that no longer fits the plan, TES will determine the policy’s true market value and manage the transaction end to end.

Schedule a confidential case review Call TES: (754) 200-1675

We don't sell products.
We design solutions.

We don't replace advisors.
We empower them.

We don't focus on transactions.
We focus on outcomes.

Important disclosures

Licensing & regulatory

Life settlement transactions are regulated at the state level. Tax Efficient Solutions, LLC acts as a licensed life settlement broker and represents the policyowner (seller) in the transaction. Brokerage services are offered only in states where TES is appropriately licensed; licensing requirements and availability vary by jurisdiction. A life settlement may not be suitable for every policyowner. Proceeds may be taxable, may be subject to the claims of creditors, and may affect eligibility for public-assistance programs such as Medicaid. Before proceeding, policyowners should consider alternatives — including retaining the policy, surrendering it for cash value, accelerated death-benefit riders, or policy loans.

Tax disclosure

The three-tier framework above describes general federal income-tax treatment under current law and is provided for informational purposes only. It is not tax, legal, or accounting advice. State tax treatment varies, and individual results depend on each policyowner's specific circumstances. Tax Efficient Solutions, LLC does not provide tax or legal advice; policyowners should consult their own qualified tax advisor and attorney. References to the Tax Cuts and Jobs Act of 2017 and Internal Revenue Code provisions reflect law as of 2025 and are subject to change.