“Life Settlements” Seen Increasing as Population Ages

— May 18, 2021 —
Published in LIFE INSURANCE
on investmentnews.com
by Mary Beth Franklin

Selling unneeded insurance policies to a third party can provide retirees with needed income.

The most common reason to buy life insurance is to provide income replacement for loved ones in the event of the death of a breadwinner. But as life goes on, children grow up and family needs may change. The once-valued protection can become a financial burden for an aging policy holder.

Older policyholders who don’t want to keep their life insurance, or who can no longer afford to pay the premiums, have three options. They can stop paying the premiums and allow the policy to lapse. They can surrender the policy and collect any accumulated cash value, minus any loans or surrender fees. Or they can sell their policy to a third party.

What started as a simple transaction to fulfill the need for immediate cash has evolved into a complement to the overall financial planning process. Many advisers now include life insurance in their overall annual review process, asking clients about the original purpose of the policy, whether their goals have changed and how the policy fits into those goals.

Peter Hershon, Senior VP, Coventry

To be eligible for a life settlement, a policyholder generally must be 65 or older and own a life insurance policy worth $100,000 or more. Younger policyholders may qualify for a life settlement if they have experienced a decline in health since they first purchased the policy.

Most types of insurance qualify for life settlements, including universal life, whole life, variable life and even term life policies that are convertible to permanent insurance. Proceeds from a life settlement can be used for any purpose, including to pay for current medical expenses or long-term care needs or to add to an investment account or supplement retirement income. There is also an option to retain a portion of the policy death benefit while eliminating future premium payments.

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