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What is Life Settlement?

Life Insurance Finding Value in a New Marketplace - Life Settlement

(Editor’s Note: A growing industry is in the business of purchasing life insurance from insured senior citizens for more than the surrender value and less than the final death benefit. The following article was written for SeniorJournal.com by a broker in this business.)

By Valerie Greenberg

Oct. 6, 2004 - There are questions that may prompt a senior to look at their life insurance policy in a different manner. Those questions include; is my existing life insurance policy not performing as expected? Have circumstances changed since I purchased the policy, making it unnecessary or undesirable to keep?  Have premiums become unaffordable?  Would another policy or investment make more sense for me at this time?  Has there been a change in ownership of a business?  Can I reduce or eliminate premiums?

Life insurance policies may have more value to a senior today than just the cash surrender value, especially when it is no longer fulfilling a need.  An industry, which has grown over the last decade and continues to grow, is creating options for seniors that own life insurance policies.  The industry I am referring to is the Life Settlement industry.  They are giving value to your policy and extending an invitation to find out what that value is.

Institutionally funded companies are now purchasing existing life insurance policies of seniors.  In some cases, it can be for substantially more than the cash surrender value.  The senior must be at least 65 years old.  Other factors taken into consideration for purchase are face amount, premium amount, general health condition of the insured and the type of policy.  While not all policies are considered purchasable or worthwhile purchasing by Life Settlement companies, Life Settlement brokers have been able to restructure a policy making it more likely to receive an offer.  Some brokers also have private institutional sources to purchase policies.  Some Life Settlement companies may not be interested in a particular policy while others may be, so the policy needs to be sent to the full market of all possible purchasers.  A broker’s responsibility is to take the policy to many possible purchasing companies.  This results in not only obtaining an offer but the highest possible offer.

When I speak of institutionally funded, I am referring to major financial institutions such as banks and insurance companies who are providing funds to the Life Settlement companies to purchase the policies.   To clarify further, Life Settlement companies purchase policies while Life Settlement brokers work with more than one purchasing company.

Something that seniors are increasingly finding is that when they purchased policies years ago and expected dividends to cover premiums, that they are not covering the premiums because the interest rates have fallen.  Now premiums may have risen, or cash surrender values may be eaten up faster than anticipated to pay premiums and policy owners have to dip into their pockets to pay further premiums or the policy will lapse.

Other situations may exist that necessitate looking into Life Settlements.  One such situation was in a trust that had several policies.  The gifting allowances were not enough to cover premiums on all policies.  To solve the problem one policy was sold which generated money to pay premiums on the other policies and freed up gifting allowances.

The process of finding out the value of your policy is simple.  An application is completed, which includes medical and policy information release forms.  No physicals are required.  After the broker obtains the medical reports, they are sent to another company to formulate other numbers that are needed.  This information, along with specific information obtained from the insurance company on which the policy is written, is packaged and sent for bids to various companies that are able to purchase the policy. If the policy owner agrees to sell the policy, the funds are held in an institutional escrow account while all paperwork is completed.  Payment is in a lump sum.  The purchasing company then takes over premium payments.  The policy owner is under no obligation to accept an offer and sell the policy.  The policy owner incurs no cost; the broker pays for medical and other reports.

Ownership of policies considered for purchase can be individual, trust, company owned etc. Type of policy can also vary such as term, group, universal, survivorship or whole life.  No matter what situation your policy was originally purchased for, you can find out the value of your policy in this new marketplace.  You can then decide on a variety of options:

>   Keep the policy.

>   Sell the policy and use some of the proceeds to purchase a more cost effective policy to replace it.  Today’s life insurance market offers more efficient and affordable policies.

>   Sell the policy and purchase another type of policy such as Long Term Care insurance.

>   Sell the policy and purchase another investment.

>   Sell the policy and use the proceeds for supplemental income.

>   Sell the policy and donate the proceeds to a charity.  This may result in a higher tax deduction than just donating the policy.  It also gives the charity immediate cash instead of a policy either they or the donor has to pay premiums on.

>   Sell the policy and use the proceeds in any other manner.

When you know the value of your policy, you can take advantage of options that may be open to you.

Valerie Greenberg of Valerie Greenberg and Associates, Life Settlement broker based in Michigan, also works across the country. For more information, reach her at 248 548-1086 or valgreenberg@hotmail.com

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