- Mariah Carey
life settlement is the sale of an existing life insurance policy for a lump sum of money. It allows policyholders to access
the fair market value of their life insurance by selling their policies and receiving payments greater than the cash
surrender value.
Technically, a life settlement contract allows you to sell your insurance policy to a third party in exchange for a reduced
amount of the face value. This is possible because a life insurance policy is actually property, like a car, house, stocks
and bonds that can be legally sold. A life settlement essentially lets you extract value today from an asset that is
generally thought to only have a benefit when you die. Typically, life settlement transactions involve life insurance
policies of a large face amount; “key-person” coverage or corporate-owned life insurance; or policies representing
excess coverage that is no longer needed.
Here’s how a life settlement works: When a life settlement company buys your life insurance policy, it pays you a
percentage of the policy's face value. Then the life settlement company becomes the new beneficiary of the policy at
maturation. As such, it is responsible for all paying all future premiums and collects the entire death benefit when the
insured dies.
A Growing Industry
With a life settlement, you can receive a large sum of cash in exchange for your insurance policy while you’re still alive.
This eliminates premium payments, accommodates the changing needs of your dependents and provides greater
financial flexibility.
Life settlements can also be used for charitable giving. Complex estate and tax planning strategies can apply when
using life settlements in a planned giving program. But here’s how this works in simplest terms: You donate your life
insurance policy to a charitable organization, which immediately sells the policy for a lump sum of cash via a life
settlement.
These and other benefits are making life settlements an attractive option for seniors with unwanted/unneeded
insurance policies. Consequently, the life settlement industry has seen significant growth in recent years. A study by
Conning & Co. Research found that senior citizens owned approximately $500 billion worth of life insurance in 2003, of
which $100 billion was owned by seniors eligible for life settlements. Since 2003, more and more of these eligible
senior clients have sold their policies and helped the market increase.
Separate research by the University of Pennysylvania’s business school found that life settlement providers paid
approximately $340 million to consumers for their underperforming life insurance policies, an opportunity that was not
available to them just a few years before. "We estimate that life settlements, alone, generate surplus benefits in
excess of $240 million annually for life insurance policyholders who have exercised their option to sell their policies at a
competitive rate," according to the research.
Selling Your Policy
You could be a prime candidate if you are of retirement age, have paid off your mortgage and other debts, and no
longer require the financial protection of life insurance. The amount you receive will depend on your age, health, death
benefit, and the number of years your policy has been in force.
Seniors with the greatest chance of selling their policies are those that are older than 65 years of age, have a
calculated life expectancy of more than two years (but less than 10 years) and may have experienced a health change
that has led to their insurance premiums increasing. Depending on the policy holder’s life expectancy, just about any
type of policy can be sold, including universal life, whole life and convertible term contracts. However, policies
generally must be valued at least $100,000.
Determining whether to sell your life insurance policy is a purely personal decision. You might consider a life settlement
under the following circumstances:
• Your employment status has changed.
• You need additional funds to pay medical/long-term care expenses.
• Your insurance premiums are too expensive and you can no longer afford them.
• You would like to implement a charitable or family gifting plan.
• You are facing bankruptcy.
Consulting with an Advisor
Before you decide to sell your insurance policy, you should examine all the available options, advises the American
Council of Life Insurers, a Washington D.C.- based trade group. And instead of going it alone, consult with a financial
advisor who is familiar with life settlements. This could include account/CPA, lawyer (especially elder law attorney),
financial/estate planner, certified senior advisor or charitable trust officers.
Additionally, you might consider working with a broker—although your financial advisor can submit your case to the life
settlement company directly. However, in an industry where market value for life insurance policies may be unfamiliar,
brokers typically do the best job of getting fair market value for policies. They submit life settlement cases and bids to
multiple companies, which can facilitate negotiations between high bidders.
Keep in mind that life settlement companies are essentially investors that fund many transactions each year. They hold
purchased policies as portfolio assets, rather than making them available to outside investors. They also have in-house
compliance departments to carefully review transactions, and they are backed by institutional funds from a major bank.
Steps to Life Settlement Transactions
Wondering what happens during life settlement transactions? Here are the steps involved in the typical transaction:
• Step 1: You consult with an advisor and decide to sell your policy.
• Step 2: You and your advisor select a broker.
• Step 3: The broker submits your case (and you provide a release for your medical information) to various
companies.
• Step 4: If your policy is eligible for a life settlement, providers send offers to the broker.
• Step 5: You accept an offer and then complete the company’s closing package.
• Step 6: The life settlement company places a cash payment in escrow and submits change of ownership forms to the
insurance carrier.
• Step 7: Once the paperwork is verified, the funds are transferred to you.
Article Source: http://www.Free-Articles-Zone.com-By David Springer
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