For over 20 years, life settlements have been a little-known but powerful tool that has offered people over the age of 70 a way to unlock value in their existing life insurance policy. In its basic form, a life settlement transaction involves a policy owner, the seller of the life insurance policy and an institutional investor, the buyer. The benefit to the seller is that the buyer buys the policy for more than the cash value of the policy. This gives the seller more value than he would otherwise have received had he cashed the policy.
Why sell a life insurance policy? : There are many types of policyholders who want to sell a life insurance policy. Some are individuals who no longer need the policy or who do not want to continue paying premiums. Another type of property is a trust or trustee who finds that a policy no longer meets the initial estate planning needs of the insured. Finally, companies once had a buy-sell or key person need that no longer exists. In all of these cases, sellers have the potential to realize up to four to five times more than the cash value of the policy through a lifetime settlement transaction. Even those with term insurance have the potential to sell a policy that would otherwise be of no value.
Current state of living establishments: The industry has evolved considerably since the early 2000s. Many state insurance departments have heavily regulated the industry and new laws have been put in place to best protect the interests of the policy owner / seller. .
In addition, the market for salable policies has grown. A life settlement is no longer a transaction for a person over the age of 70 who has health problems. We are now seeing healthy people in their mid-60s taking advantage of their unwanted policies.
Even with the advancement of the market, studies have shown that on average, $ 200 billion in settlement-eligible life insurance policies expire or are surrendered each year. Additionally, data shows that nearly 90% of all universal life insurance policies issued are either lapsed or surrendered. These are staggering numbers considering there could be a more lucrative alternative.
Managing your life insurance: Life insurance is an asset and, as such, should be reviewed regularly by a professional. The prolonged low interest rate environment has resulted in many policies underperforming, leading to their premature lapses. Insurance companies have started to increase the cost of insurance in response to low interest rates and the increasing longevity of the population. As a result, carriers increase the cost of insurance, which in turn increases the premiums of the policy owner. Finally, higher estate tax exemptions can negate or reduce the need for life insurance for estate planning purposes.