Life Settlements are a unique financial option that allows the owner of an unneeded or unwanted life insurance policy (typically someone over the age of 70) to sell it off to a third-party owner (typically a financial institution) for a percentage of the death benefit as a lump-sum while they are still alive.
It is the only financial option available that actually rewards the owner with higher re-sale value as they get older and sicker. During the coronavirus pandemic, seniors who own a life insurance policy are actually holding a very valuable asset that is increasing in value as the pandemic gets worse. Life insurance companies are reluctant to issue policies in today’s environment, but the life settlement market is booming.
Life insurance policies are one of the most valuable and stable assets a person can own because the death benefit is guaranteed for as long as premiums are paid for the policy. Policy owners have the legal right to sell off a policy the same way the owner of a home has the right to sell that asset. The majority of people don’t realize that their policy has secondary market value and can provide a lump sum cash payment while they are still alive. Unfortunately, as many as 9 out of 10 policy owners will lapse or surrender their life insurance without realizing this—and after making premium payments for years! Would you abandon your home without selling it after years of making mortgage payments? Of course not, and no one should abandon a life insurance policy after years of making premium payments either. It is critical that the owner of a life insurance policy understands that they can use their policy while still alive to help cover the expensive costs of retirement, health care and long-term care.
The value of a life settlement is based on “reverse underwriting”, and the more advanced the age and health impairments of the insured is, the higher the percentage of the life settlement lump-sum payout will be. Industry averages over the years show that Life Settlement market value can be 5x-10x greater than surrender value, and certainly a smarter option than to lapse a life insurance policy after years of premium payments. The industry average payout for a life settlement is around 25% of the face value for a policy. The range for a Life Settlement can be as low as 10% and can climb as high as 60% or greater of the face value, and once the policy has been settled there are no more premium payments required. The typical age range for a Life Settlement is 75-92 with a remaining life expectancy under 10 years, but younger or older applicants can qualify based on the type of policy or the severity of their health related impairments. Because life settlements financially reward the policy owner the older or more impaired their health becomes, the transaction can be a tax-advantaged financial alternative for liquidating a life insurance policy instead of allowing it to lapse or be surrendered.
During the coronavirus pandemic, Life Settlements are an immediate lifeline for seniors who could be struggling financially and own a life insurance policy in danger of being abandoning without realizing it could hold significant re-sale value. Seniors have watched their investments and income fluctuate wildly and many have taken losses. For many seniors who own life insurance, they must decide if they can afford to make the next premium payment on a policy, or are wondering what other assets they can look to for value—in this situation, a life settlement could be a much better option for them during this time of crisis.
Life insurance policy death benefits are guaranteed and are not impacted by the current performance of the stock market-- a $100,000 death benefit last month is still $100,000 today and will still be $100,000 next month. Because life insurance policies are uncorrelated to market and economic conditions, investors value buying life insurance policies as a non-traditional asset to balance their holdings. Life insurance policies in the secondary market are more valuable than ever.
What You Need to Know About Life Settlements Today
- Life Settlements are a flight to safety as an asset during economic crisis.
- Life insurance is “uncorrelated” from economic conditions because death benefit values are guaranteed.
- A $100,000 death benefit has not changed from last month to today to next month no matter what is going on around us.
- Seniors are being hit hard by this crisis not just because they are vulnerable to infection and fatality, but because their investments and income have taken a huge hit as the stock market has melted down.
- Many seniors will be facing a decision about making their next premium payment on a life insurance policy. Should they keep a policy or should they take any cash value or just let it lapse?
- For any seniors struggling financially, the life settlement option could be a better move than:
- Lapsing or surrendering a policy
- Liquidating investments or assets in a down market and locking in losses
- This is an immediate financial solution for seniors:
- A financial solution that can be accessed during a crisis
- The settlement is for a policy a senior already owns and has made premium payments on for years.
- There are no fees to do a life settlement—there are no out of pocket costs
- When a person settles their policy, the policy owner receives cash which can often be tax-free and they are no longer responsible for premium payments.
- The process can be completed from start to finish in 90 days or less.
- The entire life settlement process is conducted remotely and there is no need for in person meetings at any time.
Life settlements have become a mainstream financial option for seniors on par with reverse mortgages. Both provide an outlet for seniors to leverage the value of an asset they already own. But far too many seniors who own life insurance will throw their policy away without realizing it is a stable and valuable asset that they can tap into.
Because the transaction monetarily rewards the policy owner the older and more impaired they become, it is a rare financial outlet that has actually increased in value during the coronavirus pandemic.
Chris Orestis, President of LifeCare Xchange and known as the Retirement Genius, is a nationally recognized senior care advocate and expert in retirement, long-term care and specialty senior living funding solutions. The author of two books, numerous published papers and articles, and a frequent industry speaker; he is the innovator that brought the LTC Life Settlement into the market over a decade ago.