Life Settlements: A Viable Option for Today’s Seniors


 Life Settlements: A Viable Option for Today’s Seniors

In recent years, as the population has aged and Americans are living longer, a new type of investing has emerged. Called life settlements or "death contracts," these investments allow individuals to sell their life insurance policies in return for cash at any time prior to death.

This controversial investment is more popular with investors who do not have an estate plan or who need immediate liquidity and are less popular with people who are focused on a family legacy or people with significant debt levels. Regardless of your level of risk tolerance, it is important that you understand the risks involved before deciding if you want to become involved in this type of investment.

What is a life settlement?

In simple terms, a life settlement is the sale of an existing life insurance policy at a price that is less than the policy’s death benefit. When you buy a new life insurance policy, it can be expensive. However, if you have an older policy, the cost can be significantly less. For example, let’s say that you have a $100,000 term insurance policy and it has 10 years left before it expires. Let’s also assume that you are in good health and your age makes you eligible for another $100,000 term insurance policy today for $3,500 per year with no medical exam. Your end-of-life cost would be $16,000 for the two policies combined. By contrast, if you had sold your existing $100,000 policy and received an immediate cash payment of $15,000 from the proceeds, your costs would only be $5,500 for each policy.

Life settlements are now possible in many states because of a change in state laws that allow individuals to use life insurance policies as collateral to secure loans or to create personal trusts. Prior to 2010, life insurance companies could not sell their policies to third parties (unless the insured had died), so there was no opportunity available for investments at this time.

Life settlements are also attractive to investors because of the tax benefits. Only a portion of the cash received from life settlements is taxable. The Internal Revenue Service allows up to $125,000 in death benefits for any one policy sold without any tax being due on the first $250,000 received. After that, 10% of all proceeds will be taxable at your marginal tax rate. Tax experts recommend that you pay required taxes when you receive the cash and save and invest all after-tax proceeds for future use.

Why are life settlements attractive?

There is no secret to making money in the life settlement business. The problem is that it is not a secret as much as an opportunity. It requires a certain level of knowledge, time and money to become involved in this type of investment, and there are risks involved.

The biggest attraction of the life settlement business is the ability to buy an older term insurance policy at a discounted price. The amount you can receive may vary greatly depending on several factors. In addition, you may not be able to get all or part of your cash up front. Some life settlement buyers will agree to a delayed payout structure that will deliver cash to them over time. For example, you might receive 25% in year one, 50% in year two and the remainder upon death.

Other factors to consider include:

How long you have left on your term insurance policy. The older your policy, the more money you may be able to receive from a buyer.

Your age and health history. Buyers will pay more for policies that are held by healthier people who have a longer life expectancy. If you are older with health issues, it is unlikely someone would pay nearly as much for your policy as they would for someone younger in good health.

If you have a cash-value life insurance policy, it could be bought and sold just like a traditional policy. The cash value and death benefit that is associated with many of these policies make them an attractive option for buyers. However, there is no guarantee that it will be easy to find a buyer or the terms you receive may be poor. If you do get an offer, you should always consider getting advice from an expert in this field before making any decisions.

Advisory firms in many states are now offering life settlement services to investors with or without an advisor. These firms are not regulated by any state or federal agency so their fees and experiences vary widely depending on the firm. In addition, your risk tolerance can make a big difference in how much you will be able to receive for your policy.

Life settlement issues

There are several issues that can affect the life settlement market, including:

The ability of buyers to actually obtain policies. As mentioned earlier, life settlement agreements must be in place before a policy can be sold and assured that it has been surrendered. However, the market for surrendering policies has not grown significantly as some people believe that older policies will not sell quickly or at a fair price.

The state laws that govern life settlements. This is extremely important if you are considering the use of a trust or loan to invest in a life settlement. A few states have conditions on when life settlements can be used, which means if you live in one of these locations and want to sell your insurance policy, you may not be able to do so.

The ability of buyers to accept policies from independent agents and brokers. Most buyers will not purchase policies from independent agents because there is less transparency in the process. In addition, some states have requirements that must be met before a sale can occur, including laws requiring approval by an insurer or an accounting firm.

The ability of buyers to sell a life insurance policy without an attorney. It is easy to get a policy in the mail, but many agents have very limited experience in this area. There are also issues related to tax liability and regulatory compliance. In addition, it is possible for a buyer to receive tax benefits that they do not qualify for.

Life settlement risks

When you buy or sell a life insurance policy, there are several factors that you should consider before completing the transaction:

Age of the insured individual – You do not want your policy sold if it will substantially increase your risk of death in the future.


If you are looking for an investment opportunity that has the potential to pay you a large amount of cash, then life settlements may be the solution. You can find more information about this type of investment at This Website offers information on how to buy and sell a life insurance policy along with an overview of the forms and documents you may need to consider.

However, you should only use a qualified professional to help you with your objectives so that there is no misunderstanding about how much money your policy might be able to generate or whether or not it is easy to obtain funding based on the age of your insured individual and health history.

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