What do Life Insurance Companies Say about Life Settlements?


life insurance companyFor over 150 years the life insurance industry remained basically unchanged. People bought life insurance to provide cash to loved ones after their death. It was a strong tradition that life insurance could not be sold to someone else. The only way to end a policy was to just let it lapse or "trade" it in to the life insurance company for the "Cash Surrender Value," most often a fraction of the premiums paid.

People are very familiar with this traditional view of life insurance and most are generally unaware of and even somewhat suspicious of the concept of selling their life insurance. This is a perspective that life insurance companies encourage. Generally speaking, life insurance companies do not like the concept of life settlements at all. Life insurance companies have aggressively tried to hold back the life ettlement market. They cite many passionate arguments to support their case but the reality of the situation is that the life settlement market threatens to reduce the very large profits they make.

Life Settlements Give Seniors Power Over Life Companies

Historic life insurance industry statistics show that 90% of Llfe policies expired prior to death benefit being paid out. This means that in those 90% of cases, the life insurance companies collected premiums and never had to pay out the death claim. Prior to the life settlement market the only buyer of a policy was the life insurance company. Effectively they had a monopoly.

Now, however, seniors have a choice of competing buyers for their policy. By giving them choices, this secondary market has taken power from the life insurance companies and transferred it to the seniors. This is the power of free markets and can be seen at work in many other asset classes.

Life Settlements are a Good Deal For Consumers

The fact is, a vibrant secondary market is vital to the success of any asset class. Imagine when you bought a home your only option was to sell it back to the builder for a fraction of what you had paid in mortgage over the years. The chances are you would not be very likely to buy a home.

In a landmark study Neil Doherty, Professor of Insurance and Risk Management at Wharton school of business, demonstrates that breaking the life insurance company's monopoly the Life Settlement market will be good for consumers.

"...we have demonstrated that the competitive secondary market for life insurance policies improves the welfare of both new and existing policy holders"

The Benefits of a Secondary market for Life Insurance Policies, Wharton Financial Institutions Center, 2002.

Life Insurance companies make many dire predictions about how life settlements will affect the market. They also try to play on certain fears that are natural in anything that relates to an emotionally sensitive area like the death of a loved one.

Undoubtedly, the industry needs to adhere to the highest ethical standards. It is also true that life settlements are not appropriate to every situation. However, when seniors can no longer afford or no longer need their policy, a life settlement gives them a viable and often profitable option.


About the author:

David Mickelson, ChFC, AEP is an expert in wealth strategies for seniors. He has helped hundreds of seniors with life insurance, life settlements, and all aspects of estate planning.





The Purpose of Life Insurance

Life Insurance companies are concerned with protecting the integrity of the industry. The purpose of life insurance is to provide funds for a policy owner's loved ones and charitable causes after their death. Life settlements do not alter this foundation principle, they just give seniors a liquidity option should they need it.



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