Did you know your life insurance policy is an asset you own? It is — just like your car or house. The Insurance Studies Institute estimates that 500,000 seniors a year will lapse their life insurance policies, walking away with little or nothing and leaving behind almost $100 billion in benefits. Why? The short answer is because the policy is no longer wanted, needed or affordable, and people do not know there is another option.
Like any asset, a life insurance policy can be sold. But why would anyone want to sell their life insurance policy? Sometimes, the reason someone bought life insurance years ago is no longer an issue or concern today, making the life insurance policy now unnecessary, unwanted or unneeded. For instance, perhaps a term policy is ending, a spouse has passed away, the house is now paid off, the kids are gone, a business has been sold, divorce has taken place, etc. Or, sometimes, the policy simply becomes unaffordable or no longer fits into a retirement budget.
A policy is sold through what is called a life insurance settlement or life settlement for short. Simply put, a life settlement is the sale of a life insurance policy to a third party (usually an investor group) who gives the seller cash for the policy. This investor group then becomes the owner of the policy, pays the premiums and receives the death benefit when the policy matures.
Almost any type of life insurance policy can be sold — universal life, whole life, even term policies. Studies from the Wharton School and London Business School have shown that even if a policy has cash value in it, a life settlement can yield on average three to five times cash surrender value.
Like selling a car or house, clients can do anything with the settlement money they wish. This is a good opportunity for clients to help build their retirement income, help fund long-term care needs such as home care or assisted living, donate to their favorite charity, or take that dream vacation.
Believe it or not, life settlements have been legal since 1911, when a U.S. Supreme Court decision (Grigsby v. Russell) paved the legal way. However, nothing really started to happen in this area until fairly recently. Today, life settlements are highly regulated by Departments of Insurance across the country, and the process is very transparent.
The Insurance Studies Institute also shared that 90 percent of surveyed seniors would have considered a life settlement…had they known about it. You should consult your financial and insurance professionals before undertaking a life settlement, as they are not appropriate for everyone. But if you no longer want or need your life insurance policy, unlocking the value in this “hidden asset” may make sense. After all alternatives have been considered, and the conclusion is that it is time to lapse or surrender a policy, a life settlement can offer significantly greater value.
Lisa Rehburg is president of Rehburg Life Insurance Settlements. She has been in the insurance industry for over 30 years and can be reached at (714) 349.7981 or [email protected] For more information, visit www.rehburglifesettlements.com.
Policies that qualify for life insurance settlements include term policies, whole life, universal life, joint policies, and sometimes even group life insurance policies. You generally must be age 65 or older but may qualify at a younger age with a severe or terminal health condition.
Thank you for your input, Dan, and for reading Desert Health!
With appreciation ~
Lauren Del Sarto