You are probably like most of the seniors who have been taken by surprise about the recent popularity of life settlements. Probably, it is something you never even knew existed. You probably wonder if you really can sell your life insurance policy in return for a tidy amount of cash. If you have been thinking on those lines, then there is good news for you; it is something you can indeed do. To most of us, life insurance is a means of ensuring our near and dear ones’ financial stability. It is there even when we will not be there to support them financially. But the point to note in this is that life insurance is a form of property, and we can buy and sell it. The transaction carried out when a buyer and seller engage in the sale and purchase of life insurance is referred to as life settlement.
A Good Option
Life settlements are an excellent option for people who don’t need life insurance anymore or can’t afford to pay the often-hefty premiums that come with it. This cash lifeline is often a lifesaver for retired people who have been out of a livelihood source for a long time and people who cannot afford their healthcare costs. It is also a financial instrument that few people are even aware that it exists. People are not aware of the financial tools at their disposal. The result is that people sell even their houses to pay for proper health care. It is indeed ghastly to consider when people already have the means to pay for their care but don’t know that.
What You Absolutely Need to Know
While it is indeed a perfect option for the people needing it, you need to know a few things, though. This article will guide you through that. Let’s start with the beginning and discuss in brief what life settlements are and if you are eligible:
What are Life Settlements?
To sum things up, in a life settlement, a life insurance policy owner sells his policy to a third party. The financial compensation for the transfer of ownership typically exceeds the monetary value of surrendering the policy. But still, it is significantly less than the sum assured by his death. As the experts from qcapital.com point out, there is a lack of consistency in the US laws that regulate it. Usually, in life settlements, the third party carries on paying the insurance premiums and profits when the insured person dies.
The concept of life insurance as a form of personal property dates back to a US Supreme Court ruling in 1911. As AIDS began to spread its tentacles in the 1980s, the concept of transferring life insurance ownership emerged. It was then that chronic or terminal AIDS patients would sell their life insurance to third parties in return for money. It was given the technical term of “a viatical settlement.”
During the initial days of the emergence of life settlement or rather viatical settlement, fraud was commonplace and posed a significant industry problem. People were applying for life insurance and before testing for AIDS and then selling policies when the disease was confirmed a common practice. All these malpractices affected how people perceived life settlements besides posing a variety of problems.
Much water has flowed through the Thames since then. Today, heavy regulations will stifle the activity of life settlement firms, while it is indeed a right. Most US states require a person to wait for two years after the issue of a policy before they can sell it. In another large section of states, this wait-in period is even longer- 5 years. Additionally, there are plenty of regulations to ensure consumer protection. All life settlement brokers and providers need to be licensed to carry out their activities.
Who is Eligible for a Life Settlement?
The two critical factors that determine the solubility of a life insurance policy are age and health. Investors are more willing to buy the life insurance policies of people who are too old or so sick that they will probably die soon. This is because no one wants to pay the policy premiums for decades. Naturally, they want to buy life insurance from people who don’t have that much time to live. So, in this industry, short life expectancy enhances the value of your policy.
Physical State or Age of the Insured Person
Life settlements are typically meant for people who are older than 65 years. However, the average age is 75 when it comes to people who successfully opt for life settlements. Of course, you might be aged younger than the figures, but you need to have a severe health issue that puts your life at risk. Some states have legal regulations that make it necessary for people opting for life settlements to be terminally ill. Such people must have a projected life span of no longer than two additional years. Seniors might also be chronically sick and unable to carry out at least two daily living activities among the ones specified in the law. It would be more accurate to term such sale of life insurance as a viatical settlement than life settlements. Still, the latter is the more popular term.
Amount of Death Benefit
Another thing that investors watch out for is the policy death benefit. Some life settlement providers have set a minimum death benefit before the policy owner can sell them to the company. This monetary amount is usually $50,000, while the desirable amounts are over $500,000.
Selling life insurance policies is an excellent way for the elderly to take care of themselves properly. However, please note that not all forms of life insurance are salable. You are free to sell a permanent life insurance policy or a term life policy. For the latter, investors prefer that it comes with the option to convert it to a permanent policy as they don’t want the policy to expire. Either that or the life expectancy should be significantly lesser than the term policy coverage. However, the most popular life settlements are for universal life insurance policies. The lower premiums required of them make them more attractive to investors. All in all, life settlements are a financial instrument option that few people know of and an attractive and effective one at that!