The repeatedly may come when life insurance policy owners want to rid themselves of the policies they own. Maybe they starkly no longer want to pay the premium, or they find themselves in a position where they need to access cash due to a important—and often unexpected—expense. Still, others just don’t believe they need the protection afforded by the life security companies.
Key Takeaways
- The time may come when life insurance policy owners want to rid themselves of the policies they own.
- A sentience settlement occurs when a life insurance policy is sold to an individual or entity (other than the original custom issuer) for an amount that exceeds the policy’s cash surrender value but is less than the net death benefit.
- Lifestyle settlements are distinct from other disposal options in that ownership of the policy is transferred to another person or real nature.
Whatever the reason, policy owners need to be aware of all of the options they have at their disposal when pick out whether to shed an unwanted policy. Historically, there have been six methods:
But recently, an additional option has been organized. This option is referred to as a life settlement.
Life Settlement Features
According to the Financial Industry Regulatory Power, a life settlement occurs when a life insurance policy is sold to an individual or entity (other than the prototypical policy issuer) for an amount that exceeds the policy’s cash surrender value but is less than the net death sake. The seller usually receives the payment as a lump sum and is no longer responsible for any premium payments on the insurance policy. These are now the obligation of the buyer.
Life settlements are distinct from the six aforementioned disposal options in that ownership of the policy is transferred to another man or entity. This concept may sound familiar because it is related to what the life insurance industry refers to as viatical outposts. Viatical settlements are exchanges that also involve the sale of a life insurance policy to a third party; in all events, they differ from life settlements in that the insured has a terminal illness.
Life Settlement Bidding
Myriad policy owners solicit the assistance of a life settlement broker when attempting to sell their policies. Preoccupation settlement brokers contact life settlement companies to let them know that a policy is available for purchase.
The middleman then waits for the life settlement companies to bid on the policy (not unlike an auction). Upon receiving all of the bids, the broker produce d ends the policy owner know which company offered the most money for the policy. The policy owner typically exchanges his or her policy to the company that is willing to pay the most money.
Life Insurance Policy Purchasing
You may be asking yourself why a company intention want to purchase someone else’s life insurance policy. The short answer is that when the policy is trade ined, the new owner becomes the policy beneficiary. If you agree to sell your life insurance policy to a life settlement performers, for example, the company is effectively purchasing the right to receive the death benefit that the insurer will pay at your dying out. This can be an attractive investment for the company if it thinks the factors are favorable that it’ll collect.
Many policy owners who upon selling their policies through life settlement transactions are uneasy about the idea of a life settlement flock essentially waiting for them to die. The notion of a company counting down the weeks, months, or years until death is not jolly comforting. Some may even go as far as to think that a company will resort to nefarious means to get access to the death advantage sooner than later. However, keep in mind that life settlement companies are in the business of making profit. The companies would eventually put themselves out of business if they engaged in any type of criminal behavior to expedite the claims dispose of.
Also, some entities that purchase life insurance contracts from others are not overly concerned with when the insured hungers. These entities purchase life insurance policies so they can use them for collateral to obtain
The Bottom Line
Duration settlements offer an additional option for life insurance policy owners deciding what to do with a policy they no longer demand or need. From a monetary perspective, this alternative may be more attractive than the six traditional methods for disposing of actions. That is reason enough for policy owners to discuss the idea with one of their trusted advisors (i.e., financial planner, accountant, stockjobber, lawyer, etc.).
There will probably always be concerns that companies buying these policies could participate in criminal behavior. But with accepted due diligence performed on the life settlement broker, the life settlement company, and any other entity involved in the transaction, an unitary should be able to allay these fears. Also, the fact that the industry is being actively monitored by the New York attorney comprehensive (and doubtless other attorneys general in other states) may soothe the concerns of some.