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Guide to Life Settlements
In a life settlement, a person sells his
or her life insurance policy to a third party for a lump-sum
payment. In return, the third party, who may be an individual
investor or a firm, takes over payments on the policy and
is the beneficiary of the policy upon the death of the patient.
Life settlements are also called “senior settlements” as the
people selling their life insurance policies are typically
senior citizens.
Older people often face financial difficulties. Medical bills
mount up, even for those with health insurance; for those
without, medical expenses can be catastrophic. The financial
picture is worsened when ill health forces a person to work
less or not at all.
While these problems are as old as money itself, life, or
senior, settlements are a relatively new development in response
to them.
In 1989, there were three investment companies specializing
in life settlements. Today, there are over fifty, and it is
a billion-dollar industry. As the industry continues to evolve
and become more well-known, it will doubtless continue its
growth.
Selling Your Life Insurance Policy
Can I change my mind?
If the investor changes his mind about the investment, he
or she is not legally obliged to keep the policy—but if he
or she gives it up, he has no claim to benefit from the policy.
An individual investor will find that the company that sold
him the policy will seldom take it back.
If the viator changes his mind, he may be able to get his
policy back, depending on the whether his home state regulates
the industry. Some states regulated, the viator can change
his mind within fifteen days, even if he has already received
payment. Needless to say, he is obligated to refund the payment
in full.
I could definitely use some money right now, but I would
also like to leave something to the beneficiaries of my policy
after my death. Can I sell part of my policy?
Yes.
I’m covered by a group life insurance policy. Can
I still enter into a settlement agreement?
The only person with a legal right to sell the policy is
its owner—and if you are covered by a group policy, you are
not, technically, the owner. However, if you can secure the
consent of the group you can probably still sell your policy.
What are “living benefits”?
”Living benefits” is a general term which refers to both
proceeds from a life settlement as well as accelerated death
benefits.
How long does this process take?
From the viator’s perspective, not very long. After signing
all the paperwork, the insurance company will need a day or
two to make the requisite changes in the named beneficiary
of the policy, so the purchaser should send the money (via
the escrow account) within two or three days. From the start
of the application process to the receipt of payment, the
whole process generally takes 4-8 weeks. From the investor’s
perspective, the time it takes to receive the returns on the
investment is entirely contingent on the lifespan of the person.
What are some of the factors in assessing the value
of my insurance policy?
An investor will decide how much of a policy’s value to pay
up front based on a number of factors beyond simply the face
value of the policy. The credit rating of the insurance company,
interest rates, whether there are any outstanding claims on
the policy, how long the person has held the policy and the
person’s life prospects all come into play.
Life settlements have many proponents and many critics. However,
the industry has established itself as important and burgeoning.
People who think they might be a good candidate to participate
in a life settlement should certainly seek more information
about the industry. However, they should proceed with caution
and with the assistance of informed professionals.
More questions and answers about
life settlements.
Alternatives
to life settlements.
New
lease on life - Economist article on life settlements
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