Life Settlements
THE LIFE SETTLEMENT
OPPORTUNITY
A life settlement opportunity is the sale of a life insurance type policy to a buyer for an exchange of cash and done for equitable reasons.
It could be used any time for senior citizens of the age of 65 or older as a unique vehicle to raise cash in a time of need and can be used without restriction.
Purchased by providers or investors it is simply an investment, but one, that requires expertise as most seniors have never been informed that the possibilities even exist.
Most life insurance policies are considered assets under the law, giving the owner the all-exclusive right of sale. Specializing in longevity risk, most underwriters see value in the sale of these valued-assets and find that selling a policy is much better than surrendering it, as the experienced investor knows that they will typically have to pay more than cash surrender value, and usually 10% to 25% of the death benefit to the seller upon acquisition.
The exchange is favorable to the buyer since it is an alternative to buying stocks and bonds that return on average of 8% to 10% on their investment after paying the remainder of the premium costs until maturity or death; although that could be somewhat morbid at times depending on one’s mortality.
The result of this niche investment category is a private mutual fund that invests in life settlement assets, giving investors another investment avenue to explore, especially in a bear market with falling market prices and a pessimistic outlook.
However, unlike bonds that pay interest for tying up invested capital, the life settlement buyers must pay the premiums to keep the policy valid until they sustain the death benefit, and that cost is always passed on to the fund investor, even though the portfolio manager can and will diversify its portfolio to mitigate risk.
“Everything is coming up roses!” This is not easy to achieve for any buyer, whether or not they buy policies individually or through a fund, as the risk and costs can add up rather quickly. For example, investors risk lawsuits that challenge their right to the death benefit. Insurers have been in this business for a long time, and they scrutinize life settlement issues when properly notified by the buyer-owner, including any violation of the law. Although the seller does not have to worry about this since there is no recourse to them under the law, they have to be somewhat comforted knowing that the industry is highly regulated and they are protected.
Consequently, there is always the risk that the insurer will refuse to pay the death benefit, always another reason to sell before maturity, but most insurance companies are highly rated and unlikely to default, although they can slow the process down.
The greatest risk to the buyer is that the insured lives longer than expected, and investors end up paying more in premiums than they receive in death benefits, something that actuary specialists cannot predict with total accuracy.
Taxes are another consideration for investors as they forfeit the tax-free benefit of insurance that is one of the best benefits offered in the industry. Any distributions of death benefits to investors are taxed as ordinary income placing them in a higher tax bracket, even though they pass a portion of those costs on to the investor.
Before the selling opportunity came along if you owned a life insurance policy that you no longer needed you had only two choices, surrender the policy for the cash value or allow it to lapse. However, today, as we discussed, you have a third option of selling your policy to a third-party for the right to receive the death benefit. Although banks have been accumulating life settlement policies in vast quantities for many years on their balance sheet, it has now become an investment product in an emerging market that started as an offshoot of liquidity for AIDS patients and other terminally ill policyholders in the 1980s, having a life expectancy of between two and ten years.
Now the market has opened up to many purchasers seeking new investment products that tend to generate favorable returns on investment, and hence, creates “the life settlement opportunity” for policyholders.
These settlement companies can either hold the policies to maturity and collect the net death benefit or resell the policy or bundled policies to a hedge fund for a lump sum payment.
The buy-sell theory behind the movement of money in the market is pure capitalism, wealth creation, as all investors attempt to sell this valued asset for a profit. Life settlements are quickly becoming one of the most effective and versatile products to offer senior clientele, and the amount you receive is part of this buy-sell mechanism, and all comes down to competitive price considerations. These entail terms and conditions, current and historical health profiles, and age; the older the better as uncomfortable as it seems. The market demand and buying volume for senior life settlement policies could not be better and has caused prices to rise to the point where the seller-owner can receive a favorable return on investment.
Depending on your circumstances, if you decide that this new life settlement alternative is right for you, our dedicated team of professionals, being proficient negotiators, will work with you to successfully conclude the buy-sell process so you have the opportunity to experience our fair-price policy.
QUESTIONS & ANSWERS
A senior life settlement is the sale of an insurance policy to an investor.
If you own a life insurance policy it can be surrendered and sold for cash in exchange for ownership rights.
Fill out and submit our online application with a brief description.
The transferability of the policy, its cash surrender value, initial purchase date, premium payment, and age of the policy-owner.
$100,000
Expect to receive more than the policy’s cash surrender value, but less than the net death benefit.
With our free appraisal policy, we will give you an offer.
No, policy-owners pursue life settlements when they need help with retirement, long term care, or other expenses.
It is a type of life settlement designed for the terminally or chronically ill policyholders.
No, once any buyer secures ownership of your policy, they have the responsibility to continue the premium payments to keep the policy in force.
Yes, the new owner can hold the policy until maturity or exercise their right to resell the policy in the secondary market.
No, you can use the money received from your life insurance policy however you’d like.
That is entirely your decision, but it is a good practice to keep your policy in effect as you do not want it to lapse while it still has sales value.
Yes, provided it is not encumbered, but if you choose to sell your policy, you will almost always receive more money.
Again, entirely your decision, but if it expires with little cash value, the replacement costs are expensive, and with no beneficiaries, selling will allow you to enjoy your windfall while you can.
Yes, unlike death benefits life settlement proceeds may be taxed and you could be ineligible for Medicaid.
There are no restrictions on the proceeds, and since it is not a loan, monthly payments or loan conditions are not required, no upfront fees or credit scores are needed.
There are minimum policy requirements, and all policies must insure an individual aged 65 or older, someone who is age 60 and in good health, or an individual diagnosed with a life-threatening condition.
Yes, whole life, universal life, and convertible term, to name a few.
Yes, but both insured’s must qualify based on their health status, but the healthier of the two insured is used for qualifying purposes.
The process can take between 90-120 days depending on the case before the policy owner can receive a cash settlement.