Is Life Settlement The Next Untapped Goldmine for Seniors?

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Author: Chris Cottle

Article source: http://www.articlealley.com/. Used with author's permission.

Ok, I'll admit it--I'm a bit biased about life settlements. Someone close to me recently received a small but respectable chunk of money from an unwanted insurance policy. They used the money for some fun things and to pay bills, and it got me interested in knowing more about how they did it.

As a result of this, and because I had never even heard of life settlements before, I started investigating this opportunity. What I discovered astounded me. Life settlement has been around for decades. Today it is an industry that is exploding at a growth rate of 20% or more each year, according to Conning Research of Hartford, Conn. In fact, in the last 12 months alone over $11 billion of life settlement transactions have taken place in the U.S. Large institutional investors like Warren Buffet's CoventryFirst are purchasing billions a year in policies.

Most seniors are not aware that they can potentially sell their existing life insurance policy instead of taking penny's on the dollar for the money they have saved in their whole policy over the years, or, in the case of term policies, getting nothing by letting the policy lapse or turning it back to the insurance company. Seniors who have life insurance policies of any kind, and who no longer need or want their policy can now sell it to investors in this secondary market.

Is it Legit?

An insurance policy is an asset just like a house or car. Owners can legally sell their policy to others and transfer the title, rights and obligations to their policy over to the new owner and receive cash for their policy. They can use the cash in any way that they like.

In September 2004, the Wall Street Journal wrote, "Life Settlements can make sense for sellers who no longer need coverage and no longer want to pay premiums. Selling an unwanted policy increasingly is becoming a financial management tool for older people who face a cash crunch, who don't want to rely on children for financial support or who are trying to find money for costly long-term care insurance. Some holders of term policies sell them because they've found equal or better insurance coverage at a lower rate."

"For people with universal-life coverage, which combines a death benefit with a savings component, the value of a policy in a life-settlement transaction is generally at least three times the underlying cash value of the policy...Even term policies, which have no underlying cash value and typically disappear at the end of a set amount of time, are worth something--often between 10% and 30% of the policy's face value."

The article references three examples where policies were sold in life settlement transactions:

1.