by Irv Selman
Did you know your life insurance policy is an asset you own? It is — just like your car or house. The Insurance Studies Institute estimates that 500,000 seniors a year will lapse their life insurance policies and walk away with little or nothing, and that’s after spending tens of thousands of their hard-earned dollars over their lifetime. Why do people cancel their coverage when life insurance plays an important part in a family’s financial plan? Over time financial priorities may shift making insurance coverage no longer needed, wanted or unaffordable. For instance, perhaps a term policy is ending, a spouse has passed away, the house is now paid off, the kids are gone, a business has been sold, divorce has taken place, etc. Or, sometimes, the policy simply becomes unaffordable or no longer fits into a retirement budget.
Instead of canceling, there is another option. Like any other asset, a life insurance policy can be sold. Simply put, a life settlement is the sale of a life insurance policy to a third party (usually an investor group) who gives the seller cash for the policy. This investor group then becomes the owner of the policy, pays the premiums and receives the death benefit when the policy matures. But the good news is if the seller wants to retain a percentage of the policy (the death benefit for their beneficiary), an arrangement can be made to do so and still not be responsible for any future premiums. It’s like having a paid-up policy.
Almost any type of life insurance policy can be sold — universal life, whole life, second-to-die, even term policies. Studies from the Wharton School and London Business School have shown that even if a policy has cash value in it, a life settlement can yield on average three to five times cash surrender value.
Like selling a car or house, clients can do anything with the settlement money they wish. This is a good opportunity for clients to help build their retirement income, help fund long-term care needs such as home care or assisted living, donate to their favorite charity, or take that dream vacation.
Life settlements have been legal since 1911, when a U.S. Supreme Court decision (Grigsby v. Russell) paved the legal way. However, nothing really started to happen in this area until fairly recently. Today, life settlements are highly regulated by Departments of Insurance across the country, and the process is very transparent. In order for a Life Settlement to be consummated, signatures of the insured, owner of the policy if not the insured and a letter of competency from the family physician must be supplied.
The Insurance Studies Institute also shared that 90 percent of surveyed seniors would have considered a life settlement…had they known about it. You should consult your financial and insurance professionals before undertaking a life settlement, as they are not appropriate for everyone. But if you no longer want or need your life insurance policy, unlocking the value in this “hidden asset” may make sense. After all alternatives have been considered, and the conclusion is that it is time to lapse or surrender a policy, a life settlement can offer significantly greater value.
Irv Selman is the owner of Selman Insurance Services, a broker representing most top-rated insurance companies in the areas of life settlements, life insurance, disability income insurance, annuities and long-term-care insurance. He has been in the insurance industry for more than fifty years and can be reached at (818) 590-6910 or firstname.lastname@example.org. For more information, visit www.selmaninsuranceservices.com.