What is a Life Insurance Settlement?


what is a life settlement

A Life Insurance Settlement is a complex financial transaction and the life insurance settlement process is where investors buy an existing in force life insurance policy, and thereby the right to collect the death benefit when the insured dies. Investors pay the purchase price to the original policy owners and then assume responsibility for all of the ongoing policy premiums. There are many steps in the life insurance settlement process but in essence it is simply the sale of personal property to a buyer.

Over the last few years a very large investment market in life insurance settlements has emerged. Owning life insurance is actually a form of investment, and the return on that investment is the death benefit paid to the policy's beneficiaries. Historically a life insurance policy is one of the most reliable investments available anywhere, because the death benefit is guaranteed by the full faith and credit of very highly rated institutions with many billions in assets.

The emergence of the life insurance settlement market is without doubt one of the most exciting and fundamental changes to the life insurance industry in over 150 years. The life settlement financial transaction is truly a win-win for both the policy owners that sell the policy, and for the investors that buy them. The win-win nature of the life settlement financial transaction is a primary reason for the markets explosive growth.

The possibility of re-selling life insurance in life insurance settlements has completely transformed how seniors view buying, owning life insurance policies.

A life insurance settlement is NOT the same as a viatical settlement. In a viatical settlement the insured is ill and has a terminal diagnosis. Therefore, viatical settlements are frequently arranged under the duress of illness, medical bills and the anticipation of death. Life insurance settlements are voluntary and only done with insured’s that are under no particular duress and have life expectancies of less than 20 years.

The investors who drive the life insurance settlement market are major Wall Street institutions like Goldman, Sachs or Merryl Lynch. They buy large numbers of individual policies as they provide an excellent and very safe rate of return. They buy policies of all sizes from $50,000 in face coverage, all the way up to policies with tens of millions in face amount. The amount received by a senior for selling a life policy in a life settlement range from just a few percent of the face amount up to over 40% of the face amount.


Who Can Sell their Life Insurance in a Life Insurance Settlement?

Often the term "Senior" settlement is used to refer to a life settlement. This is due to the fact that only people over the age of 65 and more commonly over the age of 70 are able to sell their life insurance policies. The key is the projected life expectancy of the insured. Investors will only buy policies covering insureds with LEs (life expectancies) less than 20 years.

Historically, insurance industry statistics have shown that, up to 90% of new life insurance policies ultimately expire do not pay the death benefits. When policy holders wished to exit a life policy while still alive, for the most part, there were only 2 options available:

  1. Stop paying premiums and the policy would lapse sooner or later with no value making all the premium paid a total loss.
    OR

  2. If there was cash value, surrender the policy back to the issuing company for a cash sum that in most cases was far less than premiums paid.

Now, there is a 3rd and potentially very profitable option for seniors to exit from unwanted life insurance. Sell that policy in a life settlement on the secondary life insurance market.






 

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Life Insurance for Sale

American seniors with life insurance may be able to sell those policies to investors for large cash payments. A secondary market for Life Insurance has emerged in the last few years that is changing the ways seniors plan for their retirement. Once a sunk cost Life Insurance is now an asset they can value and sell just like real estate or stocks and bonds.



Links

Learn how experts help seniors make money from their Life Insurance.

Understand the Life Settlement process.