What is a Life Settlement?
A Life Settlement is the sale of an existing life insurance policy. But rather than selling back to the insurance company for the policy's cash surrender value, the policy is sold to an investor. Usually that investor is a company in the business of viatical settlements.
Having the Life Settlement option can be particularly helpful for seniors with declining health but no terminal illness. They have a need for money now, not at their death and may be inclined to either simply cash in their policy for the stated surrender value, or to drop the policy because the premiums have become too burdensome. Now there is an alternative that could mean extra money for the policy owner: the policy owner can sell his policy on the secondary market just as they would sell a stock or bond, or even their home or car.
Imagine for a minute that you had to sell back your car to the manufacturer. Or if you could only sell your home back to its builder. Because there would only be one potential buyer, you would not be likely to get as much money as if you could shop around to find another buyer. Its the same idea for Life Settlements. As long as the insurance company is the only potential buyer, the amount of money available for your policy was limited. Now, however, an established secondary market in Life Settlements gives policy owners opportunities that did not exist in the past. This allows policy owners to obtain real market pricing for this valued asset, from institutional quality investors.
Life Settlement Benefits
This new service offers you and your client an opportunity to benefit from a wasting or wasted asset. Many life settlement transactions generate substantial capital, thus creating the need for additional financial products or services. In some situations, a new and improved insurance policy may even be issued, benefiting both the client and you, the financial professional. The Life Settlement solution is typically the Win-Win scenario that you have been looking for.
Increasing Demand for Life Settlements
Life settlements are one of the fastest growing areas in
the financial services arena and
represent a pro-consumer, added-value choice for persons
who no longer want or need their life insurance policies.
Strong demand for these policies by institutional investment
houses has ensured rapid market expansion in this ever-growing
and increasingly regulated secondary market for life insurance.
How a Life Settlement Works
A Life Settlement is the sale of an existing life insurance policy to an investor in a secondary market transaction. There are two parties to every Life Settlement transaction (sometimes also called a "Senior Settlement" or a "Viatical Purchase"): a policy seller (who would rather not keep the policy particularly if he or she can get a good cash no longer wants or needs the policy, or who wa) and a policy buyer (typically a life settlement provider buying the policy on behalf of an institutional investor).
The seller is the owner of the policy and may be a trust or corporate entity or a natural person. The insured under the policy is normally a senior citizen, 65 years of age or older with a life expectancy of 3 to 18 years. The price of the policy is derived in large part from the life expectancy of the insured. The amount paid for the policy will be less than the death benefit, but almost always is significantly more than the policy's cash surrender value. Sellers receive an immediate cash payment in consideration of the policy sale. The buyer ultimately collects the full death benefit when the policy matures upon the death of the insured. After closing of the life settlement transaction, the policy buyer assumes responsibility for all premium payments from the date of the life settlement to the maturity of the policy.
At least part of the sale price of the Life Settlement is likely to be taxable to the seller, and you need to know the life settlement tax rules. You should always consult a professional legal and tax advisor.
Going Further
The next step for having a life insurance policy
evaluated and priced would be to contact one of the potential
purchasers. We have a listing of life
settlement services companies on SettlementPurchases.com