The following information was printed in the Desert Times newspaper July 2021.
Your Life Insurance Policy: Your “Hidden Asset”
By Lisa Rehburg
Did you know your life insurance policy is an asset you own? It is just like your car or house. The Insurance Studies Institute estimates that 500,000 seniors a year will lapse their life
insurance policies, walking away with little or nothing and leaving behind almost $100 billion in benefits. Why? The short answer is because the policy is no longer wanted, needed or affordable, and
people do not know there is another option.
Like any asset, a life insurance policy can be sold. But why would anyone want to sell their life insurance policy? Sometimes, the reason someone bought life insurance years ago is no longer an
issue or concern today, making the life insurance policy now unnecessary, unwanted or unneeded. For instance, perhaps a term policy is ending, a spouse has passed away, the house is now paid off, the
kids are gone, a business has been sold, divorce has taken place, etc. Or, sometimes, the policy simply becomes unaffordable or no longer fits into a retirement budget.
A policy is sold through what is called a life insurance settlement or life settlement for short. Simply put, a life settlement is the sale of a life insurance policy to a third party (usually
an investor group) who gives the seller cash for the policy. This investor group then becomes the owner of the policy, pays the premiums and receives the death benefit when the policy
Almost any type of life insurance policy can be sold — universal life, whole life, even term policies. Studies from the Wharton School and London Business School have shown that even if a policy
has cash value in it, a life settlement can yield on average three to five times cash surrender value.
Like selling a car or house, clients can do anything with the settlement money they wish. This is a good opportunity for clients to help build their retirement income, help fund long-term care
needs such as home care or assisted living, donate to their favorite charity, or take that dream vacation.
Believe it or not, life settlements have been legal since 1911, when a U.S. Supreme Court decision (Grigsby v. Russell) paved the legal way. However, nothing really started to happen in this
area until fairly recently. Today, life settlements are highly regulated by Departments of Insurance across the country, and the process is very transparent.
The Insurance Studies Institute also shared that 90 percent of surveyed seniors would have considered a life settlement…had they known about it. You should consult your financial and insurance
professionals before undertaking a life settlement, as they are not appropriate for everyone. But if you no longer want or need your life insurance policy, unlocking the value in this “hidden asset”
may make sense. After all alternatives have been considered, and the conclusion is that it is time to lapse or surrender a policy, a life settlement can offer significantly greater value.
What to do when you outlive your life insurance policy
Viatical settlements are used to provide a lump sum payment by selling a life insurance policy for its partial value to an investor
group. The insured usually has a terminal illness and is not expected to live more than 2 years. Viatical settlements were especially important during the early years of the AIDs epidemic. Afflicted
patients needed cash to pay for medical and end of life costs. Medicaid rules considered life insurance as an asset. To be eligible for benefits, policies in excess of a certain face amount-$1,500
for instance- had to be surrendered for their cash value. However, in a viatical settlement, the policy could be sold for a portion of the face amount which realized a larger cash settlement. When
the insured died, the investor would receive the life insurance proceeds and the profit would be the difference between the purchase amount and the death benefit. Life insurance companies added
accelerated benefit provisions to their contracts in order to provide a portion of the policy's face amount be paid prior to death if the insured was diagnosed with a terminal
Life settlements are an expansion of viatical settlements. Actually, since the early 1900s, life insurance policies were legally
considered private contracts which could be used as trade in financial transactions. Most often, the insured used a collateral assignment of the policy to cover temporary debt which would pay the
assignee his interest as it appeared if the insured/debtor died before the debt was settled. In other words, you as the owner/insured of a life insurance policy have the right to legally sell the
contract to a third party for the highest settlement amount to be negotiated. Why would you sell your life insurance policy and who would buy it?
The same investment groups or syndicates that purchase viatical settlements buy many different types of life insurance policies; term (if
convertible), group, whole life, universal life, when face amounts exceed $100,000 from insureds usually over the age of 70 (sometimes called senior settlements). Among the reasons to sell a life
policy are; premiums are too high, the policy will soon lapse or term period will end, there is no need for coverage if a business is sold or insurable interest ends, as in a divorce, for whatever
reason the policy is no longer needed or wanted. A life insurance settlement could provide cash to pay for long term care costs, medical expenses, to supplement retirement income, or fund a
charitable endowment. Are life insurance settlements regulated? In California, and many other states, they are regulated by law and industry standards and practices. If you think you are a candidate
for a life insurance policy settlement, contact me for additional assistance.
CLICK HERE TO GET A LIFE SETTLEMENTS BROCHURE