MONETIZING YOUR LIFE INSURANCE POLICY
Life Settlements – Quite simply, a life settlement is a sale by an Insured of an existing in-force life insurance policy to a third party for an immediate lump sum cash payment that is greater than the policy’s cash surrender value. The life settlement industry arose as answer to the life insurance industry’s failure to address the needs of policyholders seeking alternatives to surrender or abandonment of their policies. Surrendering a policy is usually not a good economical decision for the Insured. A surrender of a policy to the issuer (the life insurance company) typically pays less than 5% of the face value. Abandoning the policy relieves the Insured of additional premium payments, they lose the cash value built up in the policy during the many years it was in force.
From the Insured’s perspective – There are many reasons for wanting, or needing, to sell a life insurance policy – changes in estate planning needs, unaffordable premiums, rising healthcare costs, or perhaps the policy is simply no longer needed or wanted. Those selling policies are typically over the age of 65 and own whole life, universal life or term life policies with a conversion feature. The amount a policyholder will receive for his or her policy depends on age, medical condition, the type of policy, the strength of the insurance company issuing the policy and the cost of the premiums. The price always falls somewhere between the surrender value and the face value of the policy.
Benefits for the Life Settlement Investor – Life settlements are an attractive asset class for the institutional investor. Known as an “uncorrelated asset” because their performance is not tied to other asset classes such as equities or commodities, or the health of the economy, investments in the mortality and longevity asset class can afford investors attractive returns and diversification. The aging baby boomer population should feed this marketplace with sufficient supply for years to come and the favorable return rates available on an investment in life settlements will attract capital to the life settlement marketplace.
Life Insurance Advance or Loan Programs – Instead of selling your life insurance policy, policyholders may want to consider a loan from a third-party lender, allowing the policyholder to tap into the value of their existing life insurance policy. The life insurance policy stays in place, and the third-party lender makes the premium payments. With these programs, there are usually no restrictions on how the funds can be used. A life insurance loan program can be a great option for someone with a life expectancy of less than eight years who owns a life insurance policy with a death benefit of at least $50,000.
For more information, call Edward Stone at Stone Capital Assets – (203) 504-8425.
