Sep 21 2012
Life settlements are a relatively new emergence in the life insurance market. Offering benefits to both the policyholder and the investor, it’s no surprise that the life settlement market has grown so explosively in the last few years.
What Is a Life Settlement?
A life settlement is basically an investment made into the life insurance policy of someone else. An investor purchases a policy by paying the original policy owner the purchase price. This gives the investor the right to all death benefits once the policyholder passes away, and also places the onus of premium payments on them.
Who Benefits Most From Selling Their Life Insurance Policy?
Most often, those who can benefit from selling their life insurance policy in the life settlement process are seniors and those having low life expectancy due to illness. Usually, it is those aged 65 and over who can sell their policy.
How Much Can A Senior Make From Selling Their Policy?
The amount that can be received from selling a policy will depend on a range of factors. But the return on a life settlement to a senior can range anywhere from few to over 40% of a policy’s face amount.
Why Are Life Settlements So Popular?
Life settlement popularity is due to the fact that both the investor and the policyholder benefit from the sale; the policyholder receives cash from a policy that may not otherwise pay out, while the investor receives a large payout once the policyholder passes away.
A life settlement also provides a way to avoid the large percentage of insurance policies which don’t pay death benefits upon their expiry, as well as get rid of unwanted coverage with some monetary return.
As with most things, the life settlement option may not work for everyone, even though it may look like a viable way to receive much-needed cash. There are many circumstances which can make a life settlement the wrong choice.
Coverage and Financial Implications of Life Settlements
For those in their retirement years, having life insurance represents an important asset. Engaging in the life settlement process is not a good idea if life insurance coverage is still needed, as selling a policy leaves you without coverage.
As well, insurance companies will limit the amount of coverage they will provide to one person. When life settlement occurs, this affects the total insurability of an individual, meaning that the additional coverage needed to justify a life settlement.
Financially speaking, keeping an existing policy is a good idea if it’s unlikely that the individual will be able to afford coverage following the settlement process.
Many seniors consider life settlement when they want to get better terms with a new policy. But this may not provide the full cash value from the old policy with which to finance the new one. A simple comparison of the tax due on a settlement with the numbers of the exchange will reveal the feasibility of a life settlement.
Any profits received from a life settlement, excluding paid premiums are subject to tax, which can mean that the potential profits are not worth selling the policy.
Identifying Quality Life Settlement Assistance
Care should be taken to select a broker when the decision to go forward with life settlement is made. Most important is finding a broker who will keep your, and not their best interests in mind. A broker who is anxious to close quickly is not a broker that is concerned about the benefits to you.
A broker who is capable of being transparent and who is not afraid to tell you everything you need to know about the advantages and risks of life settlement is the broker to consider. The same should be considered when choosing the company that will process a settlement, as a company whose settlement program is well-managed and who has high standards is much more likely to offer you the quality and knowledge that you need to proceed with this option.
Guest author Adam Foley writes on a variety of topics, but is particularly well-versed in the topic of life insurance. He is a frequent contributor at http://www.lifeinsurancecompaniesbystate.com/. You can also find Adam on Google.