Wednesday, May 13, 2009

The Life Settlement Alternative

If a life insurance policy is no longer needed, then most people elect to take the cash surrender value.

An alternative is to sell the policy to an institution through a life settlement.  Life settlement companies will be interested in the type of policy, the amount of the policy, and the insured’s life expectancy.  If the circumstances are good, the policy can be sold for many times over the cash surrender value.

18 comments:

Anonymous said...

The life settlement sounds good in theory, unless youre the person who sells the policy and have to look forward to a company calling every month, basically asking if youre still alive.

One client intially liked the idea, and then felt the whole deal was "creepy" that someone out there stands to make money off his death. At least with a loved one, you can take comfort in knowing they want you around (usually).

Needless to say, the life settlement has been and continues to be very suspect.

Bradley Wrightsel said...

Thank you for your comment. Do you mind disclosing the name of the company? I had not heard about those types of calls before. I imagine that would be very annoying. I suppose one would want to discuss privacy with the company before entering into the agreement.

I have not heard of anyone with insurance being "creeped out" by knowing that death proceeds were paid upon their death.

Generally speaking, life settlements are used when the policy is no longer needed or wanted. It is an option that may generate more value than the cash surrender value. I would definitely advise a person to consult with their attorney before entering into a life settlement agreement.

Anonymous said...

As a practical matter, every company would need to have the capability of tracking the insured during the insured's lifetime. If you look at the life settlement paperwork, you'll see privacy waivers/access to medical records, etc., allowing the buyer to keep track of the insured. And that makes sense - if you invested in something, you'll want to track its performance. In this case, the investment is the assumption, based on the buyer's health, that the investment will die sooner rather than later. That's why good "candidates" are age 65 or older and have some type of health issues. Explaining this to a client is not very easy, in fact it is somewhat "creepy" as one client described it.

Some states restrict the number of times the buyer can contact the insured - other states do not. I'm not sure what Ohio's life settlement/viatical laws provide - but I would imagine these restrictions would be discussed with the client prior to selling the policy.

Anonymous said...

Why sell the policy outright? The real power is in ownership of the policy...I would look at life settlement alternatives such as notalifesettlement.com. These people promise to help without SELLING your policy...sounds like a winner of an idea...

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Mike Loshe said...

Thanks for the share Mr. Wrightsel. Life settlements definitely provide a win win situation for all parties involved. The seller of the policy receives the things they need such as money for cancer treatments and the buyer gets a low risk investment.