For over 20 years life settlements have been a little known, yet powerful tool that provided individuals 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 purchases the policy for an amount greater than the policy’s cash value. This yields the seller more value than they would otherwise have received if they cashed in the policy.
Who is Involved in a Life Settlement
There are many types of policy owners who are interested in selling a life insurance policy. Some are individuals who no longer need the policy or do not want to continue paying premiums. Another owner type is a trust/trustee that finds a policy no longer meets the original estate planning needs of the insured. Finally, corporations who once had a buy-sell or key person need which no longer exists. In any of these cases, sellers have the potential to realize up to four to five times more than the policy cash value. Even those who own term insurance have the potential to sell a policy that otherwise has no value.
It should also be noted that this industry has dramatically evolved since the early 2000s. Many state insurance departments have heavily regulated the industry. New laws have been put into place to protect the best interest of the policy owner/seller.
Also, the market for sellable policies has expanded. A life settlement is no longer a transaction only for someone in their 70s who has health impairments. We are now seeing healthy individuals in their mid-60s cash in on their unneeded policies.
When to Consider a Life Settlement
If you or your client has coverage that is no longer needed, or if you’re unsure if it makes good financial sense to continue paying premiums, consider contacting a licensed life settlement broker. A broker is a third party that has access to several buyers and can hold a competitive auction ensuring that you receive top dollar for your policy. While many buyers advertise nationally, offering to buy policies direct from sellers, this is seldom beneficial and often results in the seller receiving less than market value. A broker works on behalf of the seller, looking out for the seller’s best interest, and providing up to 20 percent to 30 percent more value than a direct sale.
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For more information, please visit our Oswald Life page or contact me direct:
Mario Mastroianni, CLTC, CEPA
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