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The 'Life Insurance Settlement Process:' Should I Consider this Option?
By Allan Carney
There are now more options for life insurance policy owners who have life insurance coverage that is no longer needed or wanted. Until recently, such a policy owner had two obvious choices:
In the last several years, a secondary market has emerged in the life insurance industry. This is often referred to as the “life settlement” market, which was preceded by “viatical settlements.”
- The policy owner could maintain the policy in force and continue paying the premium
- Surrender the policy and receive the cash value, if any, from the life insurance company.
Major financial institutions in the United States, hedge funds and even private individuals have entered this market and have developed programs in which they will buy a life insurance policy, continue to pay the premiums and ultimately collect the death benefit upon the death of the insured person. In the past several years, billions of dollars of insurance have been bought and sold in this manner. (The cover story in the July 30, 2007 issue of Business Week magazine discussed this topic in detail.)
In many cases, depending on the age, health and life expectancy of the insured person, the life insurance policies may settle for anywhere from 10% to 35% (possibly higher) of the death benefit (face value).
If circumstances have changed, and an insured person decides the life insurance is no longer needed, this possibility should be considered. This concept has again reaffirmed the fact that life insurance can be a valuable asset. The life insurance “settlement market” has provided a potentially valuable alternative, which may enable the policy owner to leverage this unique asset.
A partial list of strategies which may be useful include utilizing the settlement proceeds to:
To determine if this alternative is worthy of consideration, one should contact a licensed Financial Advisor and insurance broker with experience in the life insurance “settlement market.” He/she will evaluate the “life expectancy” calculation, investigate funding sources and potential buyers in the marketplace and provide the policy owner with all facts necessary to make an informed decision.
- Purchase a new Life Insurance policy that is more suited to current needs.
- Purchase a Single Premium Immediate Annuity (SPIA) and create an income stream that is guaranteed for life and/or the life of one’s spouse.
- Purchase and fund a Long Term Care Insurance policy.
- Invest the proceeds to fund a specific objective.
- Pay premiums on other existing life insurance policies.
In order to achieve the best results, a policy owner should also consult with his/her accountant and/or tax attorney. For more information, call (847) 572-0835; cell phone: (847) 309-6300; email: firstname.lastname@example.org.