Life settlements have become a mainstream financial planning tool and can be utilized as a part of a solid financial plan. It’s a free non-binding appraisal of a financial asset.
We now know that 50% of Americans 55 years old or older have saved no money for retirement, and the remaining 50% have saved an average of $100,000. We are facing a retirement savings crisis.
A life settlement can be a powerful and constructive tool in the right circumstance. Selling a life insurance policy typically results in receiving a cash amount that is four times greater than surrendering the policy, and in many cases, much, much more. This can cover costly insurance premiums on other policies individuals may own, help liquidate a formerly inaccessible asset, help seniors cover long-term or medical care costs, and provide a cushion to a retirement fund. Yet, despite the many benefits that a life settlement can provide, many financial advisors are still wary of the practice, largely in part to myths and misconceptions that many still hold.
Now, let’s debunk some of the most common misconceptions and negative perceptions of the Life Settlement Industry.
MYTH – Life settlements are unregulated. This is FALSE
Despite what you may have heard about life settlements, they are entirely legal and enforceable. Throughout most of the country, a life settlement is regulated at the state level. These regulations are in place to protect against fraud for both policyholders, insurance companies and advisors.
43 States, as well as the territory of Puerto Rico, regulate life settlements. This means that over 90% of the United States population is protected under comprehensive life settlement laws and regulations.
The National Conference of Insurance Legislators (NCOIL) Life Settlement Model Act mandates that consumers must receive all offers, counteroffers, alternatives to life settlements, and risks related to taxation and government assistance. In addition, life settlement companies are required to adhere to state and federal privacy laws and submit anti-fraud plans for approval.
MYTH – Life settlements are too complex. This is FALSE
Most life settlement transactions take around two to three months to complete, but with the help of a life settlement professional, the process can be expedited to as little as a few weeks.
The first step is to fill out an application and sign some authorizations. They will ask for basic personal information like your age, address, some general questions surrounding your current health, and your life insurance policy. The carriers want you to think it’s difficult because they are interested in having you select to lapse or surrender your coverage because if you do… they win!
MYTH – Life settlements are a waste of time. This is FALSE
Life settlements are not for everyone, as with any financial planning strategy. But there is a reason why states are increasingly requiring that a life settlement be disclosed as an option in situations where lapsing the policy is being considered.
According to several recent studies, the annual US life insurance lapse rate is 4.5%, which has likely increased by now. This means that out of the approximate $17 trillion of life insurance currently, roughly $900 billion of life insurance death benefits lapse each year.
Always remember that you do not have to accept any offer to purchase your life insurance policy. The practice of collaborating with a life settlement broker to acquire quotes for the sale of a policy is typically free and non-binding to the seller.
MYTH – I’m not sick or old enough to sell my life insurance policy. This is FALSE
Life settlements have been known to benefit older individuals who need to cover impending medical costs and rising health care. Although, if you have any life insurance policy, your policy’s death benefit is at least $100 thousand, you are older than 65 years of age or have a life-threatening, chronic or terminal illness, you may also qualify.
Your life expectancy does not have to be depleting to receive cash out of your life insurance policy. However, age is an important factor because, in general, older individuals, or even those younger than 65 with a severe illness, tend to have more valuable policies of greater interest to investors. Life insurance is expensive and often costs even more the older an insured person becomes.
MYTH – I have the wrong type of life insurance policy. This is FALSE
While most policies sold in the secondary market for life insurance are typically universal life policies, every type of policy, including whole life at any age or term insurance, can be sold.
Many life settlement brokers will consider almost every type of life insurance policy for a life settlement, including whole life, survivorship or key-man.
MYTH – I would rather surrender my life insurance policy than sell it. This is FALSE
Surrendering your life insurance policy will always give you less money than if you could sell it since a successful life settlement offer is always greater in value than the surrender amount. The decision to surrender your life insurance policy means that your surrender amount was higher than any offer that could be generated by any buyer in the life settlement marketplace. The important step is to find out if your policy qualifies.
If you choose to sell your life insurance policy, you will deal with a third-party company, most likely a broker who has a true fiduciary duty to keep your best interests at heart.
MYTH – I have to spend my money in a certain way. This is FALSE
There are never any contractual obligations or other rules to how you can spend life settlement money. You can spend the money you receive any way you’d like. Many people use the money to fund retirement plans, such as living expenses, nursing or continuing care and even vacations. It is also helpful to many who need an emergency fund to cover costly unexpected medical expenses or funding a long-term care policy.
Call Life Insurance Settlements today to learn how to get started.