Consumers

A photo of a grandfather with his granddaughter A “Life Settlement” is the sale of a life insurance policy to an institutional purchaser for a value that is greater than the lapse or cash surrender value. The owner(s) of the policy receives a lump sum payment for the transfer of the ownership and beneficiary rights to their life insurance contract.

Many seniors, typically those 65 years of age or older, are discovering that life insurance policies, that once seemed appropriate, no longer meet their needs. Unfortunately, the life insurance agents and carriers that sold them the policies may not offer any real advice or solutions when these policies become too expensive to maintain.

Traditionally, when a policy owner decided that a policy was no longer needed, or that the premiums on the policy were too burdensome, the only options available were surrendering the policy for its cash value, or allowing the policy to lapse without value, if it was a term product. The life settlement market provides options for seniors with policies which are no longer needed, or wanted. Policies sold as a “Life Settlement” on the secondary market often command values many times greater than the cash surrender value.

Generally, it is the financial advisors fiduciary duty to inform their clients of the best possible options for the management of their assets, and typically, life insurance policies are overlooked. Because life settlements have so quickly become a viable option for seniors, many life insurance agents and financial professionals are not quite sure how to explain the life settlement option and the potential benefits to their clients. According to a study in 2008 by Agent Sales Journal, 65% of all life insurance producers have not informed their clients of the life settlement option, simply because they do not understand the process themselves.

A photo of a retired man on the beach with a surfboard As Americans enter their senior years, they often experience unexpected changes that may affect their priorities and desires. Reasons that an individual may no longer want their life insurance policy include:

A decrease in income
An increase in living expenses or debt
Higher policy premiums
Recent health changes
Dissatisfaction with existing policies
The death of a beneficiary

For these reasons and many others, policy owners allow policies to lapse by not paying the premium. In the majority of these cases, the policy owner receives nothing for the policy, or a small fraction of the value of the policy relative to the amount of premiums they have paid throughout the life of the policy.

A photo of a retired couple on the putting green In 1911, the U.S. Supreme Court determined that life insurance policies are an asset, and are freely assignable for value. The Court found that a life insurance policy is a form of property, and that a policy owner is free to sell and transfer ownership to other parties.

The life settlement market enables policy owners to transfer the ownership of their life insurance policy to institutional investors in exchange for a one-time, lump-sum cash settlement.