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Invest in Life Insurance Settlements
There are financial firms that invest in life insurance settlements, which means they purchase life insurance policies from policyholders looking to sell their coverage. When the transaction works well, it earns a hefty return for the investor and relieves the policyholder of payments they no longer want to make. We’ll go over what this transaction entails, as well as some pros and cons.
What Is a Life Insurance Settlement?
A life insurance settlement is when an insured person sells their life insurance policy to a third party. That third party takes over the policy’s payments and receives the death benefit when the insured person passes away. The sales price will be somewhere between the policy’s current cash value and the full death benefit.
These third parties are firms that invest in life insurance settlements. Many are looking specifically for policies that belong mainly to unhealthy seniors who are likely to pass away soon. You may also hear these sales referred to as “viatical settlements.” These investors want to recoup their investment sooner rather than later. They may keep the policy, or they bundle a number of policies into a new financial product that they sell to other investors.
Do you have the life insurance protection you need? Before you become an investor, we can help make sure your own family’s needs are covered. Call (800) 521-7873 or click the button below to get a free quote!
How Does a Life Insurance Settlement Work?
There are a lot of steps required to complete a settlement. It’s not as straightforward a sale as going to the store and buying a product, or even buying stock through a broker. Think of the process more like buying a house: there’s a lot of back and forth, with multiple parties involved, valuations, offers, escrow, and a lot of paperwork.
First, the policy owner will need to contact their agent or go directly to a broker. That broker will need to have contacts among people or companies that invest in life insurance settlements. The investors will take a look at the policy details – mainly the age and health of the policyholder and the cash value of their policy – and make an offer. The broker and/or agent will then relay the offers they receive to the policy owner. It’s up to the policy owner to select an offer.
The winning investor will prepare the closing documents, and send them to the agent or broker, who will send them to the seller. The seller will sign them. Meanwhile, an escrow agent will manage the financial aspect of the transaction. When the seller has completed all the necessary paperwork, including designating the investor as their new beneficiary, the buyer will transfer money to the escrow agent. Once the seller’s completed paperwork has been received and verified, the escrow agent will release the money to the insured person. The investor (now the policy owner) must then forward the new ownership and beneficiary documents to the insurance company.
Do you have the life insurance protection you need? Before you become an investor, we can help make sure your own family’s needs are covered. Call (800) 521-7873 or click the button below to get a free quote!
Should You Invest In Life Insurance Settlements?
If you’re thinking of working with a company or fund that wants to invest in life insurance settlements, here are a few considerations to keep in mind.
Pros
- Potentially high yield, low risk. It sounds a little gruesome, but there’s often a high return on investment when the insured person passes away soon after the sale of the policy. Investors may hire a physician to examine the policyholder or look at their medical records to get a clearer picture of their current life expectancy. With the right research, they can make an effective match and purchase a policy from an insured who is likely to pass away soon.
- Not affected by economic or stock market turbulence. Because the death benefit and the investor’s purchase price are agreed upon and fixed, no shake-ups in the financial markets can affect your projected return on investment. No matter what the U.S. economy does, no matter what the stock market does, and no matter what world events rock the financial markets, the key dollar values in this transaction remain locked in place. The only potential danger is from the insurance company – if they should become insolvent, they would be unable to pay the death benefit to the investor(s).
Cons
- Potential for loss if the insured lives longer than expected. All settlement offers are based on a calculation: how long is the insured person likely to live? If they live significantly longer than the buyer expects, the buyer has to make more payments than they may have planned for. Those payments may reduce or eliminate the anticipated profit. A buyer’s offer is usually based on a physician’s opinion – but did the physician the buyer hired actually see and examine the seller? Or did they only look at medical records? The more precise information you have, including about possible new treatments, the better your chances of making a profitable purchase.
- Your investment dollars are tied up. In almost all cases, you will not be able to access the money you invested until the insured person passes away. If something happened in your own life where you needed that cash, there would not be a way for you to access it prior to the death of the insured person.
Do you have the life insurance protection you need? Before you become an investor, we can help make sure your own family’s needs are covered. Call (800) 521-7873 or click the button below to get a free quote!
How to Invest in Life Insurance Settlements
To invest in a settlement, you will need to work with a broker, private equity fund, institutional investor, or other accredited investor. If you’re a high-net-worth individual, it’s possible to go straight to a broker and work with them to purchase a policy. If you’re not a high-net-worth individual, you will need to work with a fund or investor and pitch your money into a fund that purchase policies and divide the returns among all the investors.
Click here for the National Association of Insurance Commissioners’ list of state insurance departments. Here, you can find addresses, phone numbers, fax numbers, website URLs, and employee directories. We here at LifeQuote cannot offer settlements to investors. We can, however, help you find the life insurance you need to protect your loved ones and their financial future!
The best place to start is with your state’s insurance commissioner or office of insurance. They may even have lists of brokers who deal in settlements. Do your research on each potential firm or broker before you work with them – look them up online, read reviews, and check out their standing with the insurance commissioner and/or the Better Business Bureau.
Once you’ve found a broker to work with, these are questions you want to ask before you invest in a settlement:
- Is the policy term or permanent? If your insured lives longer than the term, there is no death benefit. Before you purchase, verify the type of policy and, if it’s a term, find out if it’s possible to convert to a permanent policy before purchase.
- When was the policy issued? Some policies offer limited benefits if the policyholder dies within the first two years of coverage. Be sure the policy you are buying is beyond any such period of limited benefits.
- Who is responsible for making the policy’s payments? If the policy lapses, there is no coverage in place and thus no death benefit. You want to make sure there is a foolproof way to make sure the payment is always made, whether it’s an escrow officer, an employee of the fund/broker, or you yourself.
- What is the broker’s commission? Are there any other fees involved? How do they affect your anticipated profits?
- Who is responsible for finding out when the insured person passes away? If you’re working with an institutional investor, they will usually have a case manager who handles this. But if you’re investing on your own, you will need to handle this on your own, either by communicating with the insured person, their family members, and/or physician.
Do you have the life insurance protection you need? Before you become an investor, we can help make sure your own family’s needs are covered. Call (800) 521-7873 or click the button below to get a free quote!
