This is an area involving life insurance that is receiving more and more attention and a topic where the troops (life insurance agents) are definitely divided. A life settlement involves the sale of your policy to a third party. The third party takes over ownership, future premium payments and becomes the beneficiary of the policy.

Why would a person consider a life settlement? Two reasons really. This generally involves term insurance and a person may simply not need the policy anymore. If a policy was, for instance, purchased to cover a key person in a company and that person has retired, the company may wish to recoup some of their premium payments through the sale of the policy.

The other reason is simply that the owner of the policy needs money and sees the sale of the policy as an easy way to get cash. This can be an unfortunate choice when long term family protection is bagged for a short term cash fix.

A few things about life settlements. First, the policy has to be within the conversion period. The new owner needs to be able to convert the policy in order to keep in force until your death. Second. You really need to be sick to get any significant amount of money out of a policy. A healthy 65 year old, if they are offered anything at all, won’t be offered much. I have seen this process of elimination work and the companies who do life settlements evaluate a case and determine, at least to the satisfaction, how long they believe you will live, down to the year and month. They then base their offer to you on the face amount, minus what they will have to pay in premiums on the converted policy, minus a healthy (very healthy) profit.

In most cases, in my opinion which happens to coincide with a large number of financial advisers, if you are sick enough to get a worthwhile life settlement, you are better off converting and keeping the policy yourself. Your family will net more benefit almost every time.

Then there is my own bit of discomfort with life settlements. Life insurance is all about mortality assumptions based on statistics that have been built up over long periods. Underwriters use assumptions when deciding rates for people with heart disease, diabetes or a history of cancer. My discomfort with life settlements is that there are no mortality studies that I’ve been able to find for people who sell their life insurance policies to a third party.

This country harbors one of the greediest corporate mindsets on the planet. If a life settlement group has a large block of business and profits aren’t where they need them to be, who’s to say, especially in today’s unemployment situation, that $500 here and $500 there might not hasten the mortality experience a bit. I’ve had plenty of viatical and life settlement agents tell me that assumption is hog wash and I would suggest that they allowing their greed for the sale to overwhelm their common sense. People get rubbed out in this country all the time for a lot less than hundreds of thousands or millions of dollars.

Bottom line. As for me and my agency, we will not recommend or participate in life settlement business.

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