Life Settlements, Can They Save Your Clients Financial Life?

Unprecedented economic times, rising unemployment, bank failures, the mortgage crisis is putting horrendous pressure on millions of families. It’s hard enough to put food on the table and keep a roof over one’s head let alone pay rich monthly premiums for life insurance. Out of the blue, a television ad offers hope, “strapped for cash, try an easy, fast, life settlement,”
A lot of people are under the mistaken belief you need a catastrophic illness and a diagnosis of certain death to sell a life insurance policy. Not anymore today.

Radio, TV, the internet and YouTube are loaded with ads about selling a life insurance policy. Sales last year toppled ten million dollars and it’s the “latest boon on Wall Street” says Darras the Insurance Attorney.

Why Wall Street loves life settlements:
“We are all going to die, that is certain, says Darras, but we have been paying premiums to companies we will not die insured with and the insurance industry has made billions off us”. How many times since your client originally bought life insurance has he switched insurance companies for a cheaper premium? He gets a new agent, shown a better, financially safer company, more coverage for less money and he dumps what he had, creating a windfall for the industry. Now, the carriers are hopping mad because when you sell your life insurance policy to an investor, they never miss a premium and the carrier has to pay off the investor when you die.

Wall Street has created bond portfolios to fund investor purchases. Its’ the safest bet on the planet and they are buying up term, universal and whole life policies across the country.

Let’s take a closer look at what this is. Life Settlements or Viatical settlements is when an individual sells their Life Insurance Policy to a 3rd party investor and is able to receive Life Insurance benefits before death. This is often used for seniors or terminally ill and allows the insured to collect a large portion of benefits in order to help pay healthcare or personal debts before death.

A Life Settlement is a transaction where the policy owner sells their policy to a third party investor in exchange for a lump-sum payment. The life settlement investor is usually a corporate investor (from a life settlement company) or can be an individual investor. Most Life settlements are used in the case of the terminally ill or senior citizens who require additional care, however even healthy people with a life insurance policy can benefit from a life settlement agreement. In this transaction the policy owner or insured is essentially borrowing against their life insurance policy.

A life settlement involves the policy holder and third party investor reaching an agreement for the insured to receive a sum of money from the investor. This sum of money is usually a percentage of the actual life insurance policies worth. The third party investor then assumes the financial responsibility of payments to the original life insurance company until the insured dies. The proceeds of the original life insurance policy are then paid to the investor for a profit over what was lent or paid out.

There are plenty of good reasons to sell a life insurance policy, especially in the current economy. For instance, if the premiums are too high and the policy is going to lapse, sell it. If health has taken a serious turn for the worse and money is needed to pay for life saving off label medical treatment, sell it. If a policy was purchased when one was young and the kids are grown and the family dynamic has changed, sell it. If one had an expensive policy because of poor health and your health history has improved, sell it. Divorce, sell it. Kids are grown and now this has changed, sell it. If your client’s company is going out of business and he was provided life insurance as a company benefit, convert the coverage and sell it. If one has lost everything and literally have nothing left to sell, sell the life insurance policy.

Life settlements are transactions that should be taken very seriously as they will financially affect a person’s legacy. The life settlement option should only be utilized when circumstances are so extreme that larger amounts of cash are needed immediately. Another less extreme option is to have a life insurance policy that includes something called accelerated benefits. Accelerated benefits are when the life insurance company makes payments to a terminally ill policy holder prior to their death without involving a third party investor. This option is offered when applying for a new policy or can be added to an existing policy via rider. Additionally one should keep in mind that accelerated benefits as well as life settlements will affect eligibility for any federally funded programs (e.g. Medicaid).

One must carefully shop for a national company that has been around doing life settlements for at least 10 years and has a proven track record.

Some things to keep in mind when considering Life Settlements are, picking a reputable third party investor, researching and looking at more than one third party investor to compare price arrangements and research whether or not complaints have ever been registered against the investor you are considering using. It’s also important to note that a life settlement company will usually take into account your life expectancy when paying a percent of your original policy