Senior Citizens Selling Their Life Insurance has Become Big Business

New York Times starts series on investors profiting on seniors

December 21, 2006 – For several years there have been advertisers on SeniorJournal.com offering to purchase life insurance policies from senior citizens, but, this industry has now reached new heights, according to a recent article in the New York Times. Today, investors are funding some older Americans to buy life insurance and then helping them find other investors willing to buy them at big profits for the original investors and the senior whose life has been insured. This transaction is also referred to as a "Life Settlement."

This article by Charles Duhigg, available online, is the first in a series the NYT has begun called Golden Opportunities: Cashing In. Articles in this series will examine how businesses and investors seek to profit from the soaring number of older Americans, in ways helpful and harmful.

>> Click here to read the article on life insurance.

For more information, read the two segments below and check the links in the sidebar.

About Life Settlement

From Wikipedia, the free encyclopedia

A life settlement is a financial transaction in which a senior citizen possessing an unneeded or unwanted life insurance policy sells the policy to a third party, as opposed to surrendering it back to the life insurance company. The seller receives immediate cash for the policy from the purchaser. The entity purchasing their policy becomes the new beneficiary of the policy at maturation and is responsible for all premium payments from the time of the purchase until the seller passes away.

Generally speaking, many policy owners who are the sellers in life settlement transactions are unfamiliar with this option until a financial professional mentions the option to them. This particular type of transaction has not yet become a mainstream financial product like stock and bond transactions, though in the past few years the positive industry growth and attention from high-profile proponents such as Warren Buffett, former U.S. Representative Bill Gradison, and The Wall Street Journal has created much interest in the industry.

A recent overview of the life settlements market can be found in the 2005 Industry Outlook compiled by major industry firm Maple Life Financial. A survey found on page 4 of this publication found that almost half of all responding advisors had senior clients who had surrendered a life insurance policy for the cash surrender value (in the case of a term life policy, the surrender value is $0) when many of these clients could potentially have qualified for a life settlement. Many are beginning to speculate that offering life settlements should fall under the fiduciary duty of a financial advisor.

About Viatical and Life Settlement

From Life Settlement Association

A viatical or life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Regulatory usage of the terms “viatical settlement” and “life settlement” varies by state. However, the market generally uses the term viatical settlement to refer to instances where the insured is terminally ill with a life expectancy of less than two years. A life settlement focuses on policies insuring older individuals with life expectancies greater than two years. 

Historically, if an owner of a life insurance policy found that the policy was no longer needed due to changed needs or circumstances, the owner could elect to cancel the policy and receive the policy’s cash surrender value as a lump sum.

In the past several years, a number of companies have raised pools of capital and created a more liquid secondary market for life insurance policies.  Simply put, these companies will competitively bid on the purchase of an existing policy taking into account the insured’s current age, state of health, and the overall economic environment In other words, if they qualify, those wishing to cash in their policies can now get a competitive market quote based on several bids.

The buyer (called a provider) becomes the new owner of the life insurance policy, pays future premiums, and collects the death benefit when the insured dies. 

The sale of an existing life insurance policy by its owner is regulated in many states. If you live in one of the regulated states, you should know the rules that apply.

Providing information about selling your policy, who should sell, how to sell, and to whom to sell is central to the mission of the Viatical and Life Settlement Association of America.

>> Life Insurance Settlement Association