The Pitfalls of Life Settlements
by Peter Katt
As the economy and financial markets have seen considerable turmoil, so has the life settlement market with less funding now available for the purchase of policies. Nonetheless, the settlement market still bounces along with great enthusiasm.
Recent experiences I have had suggest this is a good time to update AAII members on what to look out for when dealing with life settlements or pitches to invest in life insurance policies.
In this article
- What Is a “Life Settlement”?
- Should You Sell Your Policy?
- Should You Buy Life Insurance Settlements?
- Creating Life Settlement Inventory
- Conclusion
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What Is a “Life Settlement”?
A life settlement is the sale of a life insurance policy by the policyowner to a third party. The policyowner typically receives cash for the sale in an amount greater than the surrender value (or there would not be any reason to go through the life settlement process). The buyer assumes ownership and pays premiums it deems necessary to keep the policy solvent. In addition, the buyer receives the death benefit upon the death of the insured.
Generally speaking, life settlements are an option for high-net-worth policyowners age 65 or older. Independent estimates report that among this group, 20% of insurance policies have market values that exceed the cash value offered by the carrier.
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