Finance Senior Stories

Life Settlements: “The Opportunity for the Consumer”

Imagine for a moment their exists a world where several buyers stand ready and willing to purchase your car. They offer substantially more than it’s trade-in value and you get to choose the highest bid. No advertising, no price negotiating, and no expense to you.

Science Fiction?

Actually, such a world now exists for owners of life insurance policies that are no longer needed, no longer affordable, or no longer serve their original purpose. The Life Settlement industry has created a secondary market for policies intended for lapse or surrender.

Chief Justice Oliver Wendell Holmes in 1911 stated that a life insurance policy is a capital asset just like a home, car, stocks, and bonds. In the past, if a client lapsed or surrendered their policies there was no fair market value available to them. The value from this asset in the past was generally thought only to have value when the insured past away. Through a Life Settlement, a policy owner can receive value during their lifetime. A dormant asset can realize its true current value.

The profile of a Life settlement candidate is over the age of 65 with a Life expectancy between 5-12 years. There has to have been a change in the health of the policy owner since the policy was purchased. Policy face amounts of 150,000 to 20,000,000 are policies are considered. The types of policies that are eligible are Term, Universal Life, Whole Life, Joint & Survivor Life, Adjustable Life, and Group insurance. When considering a Life Settlement, a questionnaire should be completed to see if the individual qualifies.

The Life settlement Industry started in the late 90’s and grew from the Viatical Settlement Industry. A Viatical Settlement is the sale of a life insurance policy from a person who has a life expectancy of 2 years or less and is documented by a licensed physician. They can be any age and any face amount. A key difference versus a Life Settlement is the tax treatment of a Viatical. Under the Health Insurance Portability and accountability Act of 1996 (HIPPA), any payment to an owner of this type of policy is tax-free.

Many states are considering or have passed legislation that the consumer should be notified that a secondary market for life Insurance policies exists if they are considering lapsing or surrendering their policies.

The U.S. Census bureau estimates that there will be 50 million people age 65 and over by 2010, which represents 15% of the U.S. population. Given this statistic, a significant proportion of the population will continue to own insurance. Industry experts estimate that Life Settlement sales could reach $20-$50 Billion per year within the next 10 years.

This transaction transfers expensive premium payments from the seller to the buyer and provides current cash to the seller for more suitable Financial planning options. The opportunity is now for the consumer to analyze their options, see what is in their best interest, and get multiple bids from Institutional Funders for a Life settlement.

The next article in this series will be on “What are the major differences between Institutional Funding and Individual Investor money.” The article will also cover why the consumer should know the major differences and the benefits to them.



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