Financial advisors and insurance agents are well versed on the topic of life insurance policies. In some cases, these policies can be the most important asset in a client’s portfolio — a way to ensure costly medical bills and other expenses are paid, and that family members have financial security in the future. Still, staying on top of every nuance and variation in the world of life insurance is no easy task. Advisors and agents are required to monitor an ever-changing regulatory environment (not just on the federal level, but also on the state level). They must track the fine print of every policy, understand if and how life settlements are taxed, and craft custom approaches for each and...
Continue reading...
Selling your life insurance policy is right up there with taking out a reverse mortgage when it comes to retirement income sources that most people would be better off not tapping. But folks do it anyway, while paying little attention to the costs and, as a new novel points out, the risks of a policy landing in the wrong hands. Selling a life policy for a relatively large sum—known as a life settlement—has gotten easier over the last decade. Hedge funds, private equity funds, insurers and pension funds dominate the market, which totals around $35 billion, up from $2 billion in 2002. Individuals are investing in them too, through securities that represent a fraction of a bundle...
Continue reading...
What Is a Life Settlement? Martha is 70 years old and recently retired. She has a life insurance policy that she took out before her children were born. Given that her children are grown up, she wonders if she should continue to pay the premiums to keep her insurance in force. A friend recently told her about life settlements and she wonders if this is a good option for her. Let's see if we can help Martha with this decision. A life settlement involves a policyholder selling his or her life insurance policy to a third party for a lump-sum cash payment. The payment amount is somewhere between the cash surrender value and the death benefit. The cash surrender value is the amount of cash value...
Continue reading...
The Office of Investor Education and Advocacy is issuing this Investor Bulletin to highlight information about life settlements and some of the risks these types of transactions may pose for investors. Individual investors considering a life settlement transaction may wish to keep the following points in mind and seek guidance from an unbiased financial professional who will not receive a commission or any other financial benefit from the transaction. What is a life settlement? In a “life settlement” transaction, a life insurance policy owner sells his or her policy to an investor in exchange for a lump sum payment. The amount of the payment from the investor to the policy owner is...
Continue reading...
A settlement option refers to the way in which a beneficiary chooses to receive death proceeds payable on a life insurance policy. Generally, a beneficiary can receive the proceeds in a lump sum or in installments. These choices are referred to as settlement options because the beneficiary has a claim against the insurer for the proceeds and the insurer is "settling" that claim by agreeing to pay the death benefit to the beneficiary in either a lump sum or in installments. The beneficiary basically has two choices regarding payment of life insurance proceeds: 1) to receive the insurance proceeds all at once (in a "lump sum"); or 2) to receive the proceeds in a series of smaller payments...
Continue reading...
A viatical or life settlement may or may not be the right choice for you. If you need money, you may have other choices besides selling your life insurance policy to a viatical & life settlement provider: Accelerated Death Benefit: Check to see if your policy has an “Accelerated Death Benefit” provision or find out if your life insurance carrier will offer accelerated death benefits. An accelerated death benefit is a feature of a life insurance policy that typically pays some or all of the policy’s death benefit before the insured dies. It could pay you a substantial portion of your policy’s death benefit without needing to sell your policy to a third party. This usually has little or...
Continue reading...
One of the most prudent principles to apply when looking to construct a well-diversified portfolio is to include assets that are uncorrelated, that is, do not move in the same return direction at the same time. To this end, life settlements have no relationship with other financial investments and can offer a stable source of income, and the asset class has been gaining attention worldwide as investors seek fixed income alternatives in a low interest rate environment. However, many SMSFs are unfamiliar with life settlements as an investment option. The underlying assets of life settlements are life insurance policies. Investors can make money on the assets by buying the policy to receive...
Continue reading...
Many people think of life insurance in rather uninspired terms. They generally consider it a liability and an expense that shows up in cash flow projections, not a true asset. This is sometimes why investors will surrender a policy or let one lapse. But before doing either of those things, policyholders should consider a life settlement. When used strategically as part of a comprehensive financial plan, a life settlement can provide significant value to individuals, companies, trusts, or other policyholders. Let’s look at what life settlements are and how they can help unlock creative solutions for affluent investors and families. What is a life settlement? A life settlement is the sale of...
Continue reading...
Since the 1990s, the life settlement space has evolved into an established, regulated industry. This evolution has largely been due to the passing of state legislation, plus the definition of industry best practices by the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL). In 2000, for example, NCOIL adopted the Life Settlements Model Act. The act defines requirements for the licensing of agents and providers, life settlement contracts, reporting, advertising, and disclosures, among other things. It also outlines prohibited and unfair trade practices. The Life Settlements Model Act was revised in 2004 and again in 2007, but...
Continue reading...
A life settlement, sometimes called a “senior settlement”, is the selling of one’s existing life insurance policy to a third party for a one time cash payment. In exchange for the one time cash payment, the third party becomes the owner and beneficiary of the policy. “Viatical settlements” typically involve those with two years or less to live and the Viatical settlements are regulated and handled by the life insurance company itself. Life settlements, on the other hand, do not involve the insurance company. Instead, Life Settlements involve third party investors and brokers who buy the life insurance policy. Usually, the third party who purchases the life insurance policy is an experienced...
Continue reading...
