Life Insurance Settlements or Senior Settlements
Elders are discovering unexpected hidden value in their life insurance policies by way of Life Insurance Settlements.
Life Insurance Settlements involve transferring the ownership of your unneeded life insurance policy for an amount of cash that is higher than your policy’s cash surrender value, but lower than the face amount.Life insurance settlements are typically an option for seniors who no longer need their life insurance and have experienced a decline in their health status since they initially took out their life insurance policy.
LIFE SETTLEMENT- From Wikipedia, the free encyclopedia
A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. There are a number of reasons that a policy owner may choose to sell his or her life insurance policy. The policy owner may no longer need or want his or her policy, he or she may wish to purchase a different kind of life insurance policy, or premium payments may no longer be affordable. Policy owners often learn about settling their policies from a financial planner or advisor, insurance broker, attorney, friends or family, or estate planning presentations.
[wpspoiler name=”Who Should Explore a Hope Settlement”]Anyone over the age of 70 should explore a Hope Settlement before surrendering their unwanted policy. To see if you qualify for a Hope Settlement, take advantage of a FREE policy evaluation to explore what is available and to get your policies real value. Application is free and places you under no obligation. Your complete privacy is upheld. We are the best place to start. Financial goals evolve. Children grow up and move away, business circumstances change constantly and you are certainly not alone if you no longer need the coverage that you once purchased to pay your estate taxes. As you address your new financial goals, having already reached retirement age, you may very well find that you no longer need your insurance policy. Just getting out from under burdensome and rising life insurance premiums has prodded many to surrender their coverage.
Many have unfortunately surrendered their coverage due to the burden of rising life insurance premiums.
[wpspoiler name=”EXAMPLE”]Take a look at a typical case on a 78 year old male retiree who had a $5 million dollar universal life insurance policy that was issued in his mid-60’s for estate planning.
The premium (cost of insurance) had increased substantially above the interest rate expectations earned in recent years and were continuing to reduce the cash surrender values and policies performance.
He notified his financial advisor that he no longer wanted to pay premiums and simply wanted to cash the policy in. His advisor knew that his estate had been reduced from the time of policy issue and along with changes in estate taxation, recommended that he do a policy evaluation.
The $165,000 annual premium became burdensome and cash surrender value had been reduced to $420,000 and would have continued to diminish each year, partly due to lower than projected interest rates from when he initially took out the policy. With only an 8% value in the policy, his options were limited. He submitted his policy for a Free Hope Settlements policy evaluation and was able to receive a 16% settlement offer of $800,000. Imagine getting an unexpected $380,000 for selling your life insurance policy that was about to be surrendered back to the insurance company for $420,000!
Most Life Settlement Companies require a minimum face amount of $250,000 to be considered for a life settlement, but Hope Settlements will be able to receive offers on all policy sizes. No policy is too small or too large for Hope Settlements and our goal is to meet the needs for all policy holders and to treat the $100,000 and $50,000,000 equally. You purchased your insurance policy to fill a gap should you die prematurely.
You probably purchased a life insurance policy to provide an income for your family, to make sure your business survives a death of a key person or to cover anticipated taxes on your estate.
Financial goals evolve. Until recently, Insurance companies have enjoyed a monopoly on repurchasing your life insurance. If you have a universal or whole life policy, you may have a cash surrender value. That is what the insurance company will give you for your policy, period. If you have no cash value because you have varied your premiums or your adjustable life plan has underperformed expectations, you get nothing when you surrender.
Historically, your insurance company has been the only buyer unwanted life insurance, enjoying a monopoly.[/wpspoiler]
[wpspoiler name=”Determining The Policy Value”]The value of your life insurance policy is based upon several variables. The solvency of your insurance company, the type and age of your policy, premium schedules, existing cash value and your health are all a factor. Variations in your health status and your increase in age since you took out your life insurance policy are the primary driver of value in the secondary market.
The underwriting of a life settlement is somewhat the opposite of when you first applied. If your health has declined since you initially took out your policy, often a hidden value is created. All things considered, an insurance company is more likely to pay a death claim to someone in poor health. If you surrender your policy any hidden value remains with the insurance company. If you qualify for a Hope Settlement, that value could very well come back to you.
Each life insurance settlement has to be looked at individually because no two cases are the same. The primary factors that determine the present day value of your policy are the projected premium expenses and life expectancy.
Life Expectancy Providers
Life Expectancy Providers (LEPs) are specialized independent companies that issue life expectancy reports (LERs) that estimate the life expectancy (LE) of an individual (typically the insured individual on whose life a life insurance policy involved in a life settlement is based). Life expectancies are not a prediction of how long individual will live, but rather are the average survival time amongst a particular risk cohort. Risk cohorts are typically grouped by age, gender, smoking, and relative health/morbidity. LE is a key component in the pricing of a life settlement.
LEPs are typically made up of actuaries and medical underwriters who utilize actuarial models based on published or proprietary mortality (life) tables and medical underwriting based on various debits/credits for various morbidity characteristics similar to the medical underwriting performed by life insurance company underwriters and reinsurance underwriters. Until recently, the most commonly used mortality table was the 2001 Valuation Basic Table (VBT) published by the Society of Actuaries based on data supplied by contributing life insurance carriers. In 2008, the Society of Actuaries published a new table, the 2008 VBT, that is based on 695,000 lives representing $7.4 Trillion in death benefits which is almost 3 times more lives than the former 2001 VBT. Included with 2008 VBT are relative risk tables (RR Tables) that separate insured lives into various underwriting categories based on the health/morbidity of the insured at the time the policy was issued. Note that no impaired lives are included in any of the RR tables, but rather were designed for companies that subdivide their standard policies into more than one sub-class. Most LEPs have factored in the experience data underlying the 2008 VBT, as well as their own experience data and other factors, as a basis for their mortality tables. This resulted in a significant lengthening of average LEs in the fourth quarter of 2008 for some LEPs. All major LEPs have continued the practice of developing and using proprietary and confidential mortality tables based on extensive medical research and mortality experience. One new LEP has adopted the use of the 2008 VBT RR Tables as a replacement for proprietary multipliers, despite the fact that Relative Risk Factors are in their infancy and not designed for impaired life nor life settlement underwriting.[/wpspoiler]
[wpspoiler name=” Life Settlement History”]Although the secondary market for life insurance is relatively new, the market was more than 100 years in the making. The life settlement market would not have originated without a number of events, judicial rulings and key individuals.
The U.S. Supreme Court case of Grigsby v. Russell, 222 U.S. 149 (1911) established a life insurance policy as private property, which may be assigned at the will of the owner. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner may transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in a life insurance policy on the same legal footing as more traditional investment property, such as stocks and bonds. As with these other types of property, a life insurance policy could be transferred to another person at the discretion of the policy owner.
This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
• Name the policy beneficiary
• Change the beneficiary designation (unless subject to restrictions)
• Assign the policy as collateral for a loan
• Borrow against the policy
• Sell the policy to another party
In the 1980s, the U.S. faced an AIDS epidemic. AIDS victims faced short life expectancies, and they often owned life insurance policies that they no longer needed. As a result, the viatical settlement industry emerged. A viatical settlement involves a terminally or chronically ill person (with less than two years life expectancy) who sells his or her existing life insurance policy to a third party for a lump sum. The third party becomes the new owner of the policy, pays the premiums, and receives the full death benefit when the insured dies. Because of medical advancements, people with AIDS started living longer and therefore viatical settlements became less profitable. As a result, the life settlement industry arose.
A life settlement is similar to a viatical settlement, but in a life settlement transaction, the insured is typically at least 65 years old and is not chronically or terminally ill.
In 2001, the National Association of Insurance Commissioners (“NAIC”) released the Viatical Settlements Model Act, which set forth guidelines for avoiding fraud and ensuring sound business practices. Around this time, many of the life settlement providers that are prominent today began purchasing policies for their investment portfolio using institutional capital. The arrival of well-funded corporate entities transformed the settlement concept into a regulated wealth management tool for high-net-worth policy owners who no longer needed their policies.
On April 29, 2009, the United States Senate Special Committee on Aging conducted a study and came to the conclusion that life settlements, on average, yield 8x more than the cash surrender value offered by life insurance companies.