If you’re facing mounting bills – health care, debt, even retirement or an emergency – a life settlement may provide the necessary cash to solve the problem.
Life settlements are a secondary market for life insurance policies. And the market has been around longer than you may think. In a Supreme Court ruling in 1911 (Grigsby v. Russell), Justice Oliver Wendell Holmes wrote that a policy could be transferred by the owner at will – like stocks and bonds. Hence, your life insurance policy is akin to a piece of property.
As a result, if you own a life insurance policy, you can:
- Change the beneficiary (unless the policy has restrictions).
- Use the insurance policy as collateral for a loan.
- Borrow money against the insurance policy.
- Sell the insurance policy to another person or entity.
Selling the policy to a third party is where a life settlement comes into play.
In the past, to get out of a life insurance policy, you had to surrender the policy or wait for it to lapse.
A life settlement, however, allows you to sell the insurance policy and use that money for whatever financial needs you have. The third-party buyer will assume payment of the policy premiums and will receive the benefit.
Meanwhile, you walk away with the money to live life.
And you can maximize the payout based on data. Well-regulated policy buyers use prescription and clinical history database searches to help project your life expectancy. This data-driven approach ensures the highest payout in life settlement transactions.
Today, the life settlement market is gaining popularity. Last year, an independent study reported a 19% increase in life settlement transactions in 2017. Direct-to-consumer marketing has eliminated the middleman (estate planning attorneys, financial advisors, wealth managers). It allows the policyholder to deal directly with life settlement providers.
A large amount of capital is coming into the life settlement market – via pension funds, endowments, and other accredited investors – and Conning & Co. said that interest reflects stability in the industry.
“There are several other drivers that favor continued growth in the life settlement market,” said Steve Webersen, head of insurance research at Conning. “The increased supply of investors will have a larger number of policies to select from because of the increasing number of retiring baby boomers. Additionally, the broad regulatory environment surrounding life settlements has stabilized, and an increasing supply of settled policies supports the continued development of the tertiary market.”
To recap what a life settlement involves:
- Selling an insurance policy for a one-time cash payment.
- The cash payment is less than the actual death benefit, but more than the surrender value.
- The policy’s purchaser becomes its beneficiary, assumes premium payments, and receives the benefit when the insured dies.
- Providing immediate cash to pay for your financial needs.
If you’re at wit’s end trying to figure out how to pay for retirement, health care, an unexpected expense, or even travel, assess all options. LifeGuide Partners can help you evaluate and monetize assets – like insurance policies – to produce immediate cash flow.