Life Settlement Industry
The life settlement industry is a growing, multi-billion dollar business that is considered by some financial experts to be a low risk investment product. However, as a relatively new and maturing market, and one that is considered by some to be controversial, government regulations are still being enacted. Current and proposed state legislation govern these transactions, but as their popularity increases so will governmental oversight. Also known as senior settlements, these investments occur when an elderly life insurance policyholder sells a qualified policy to investors or brokers in exchange for a lump sum of cash. The purchaser then becomes the beneficiary of the policy and receives its value upon the death of the policyholder. Supporters of the life settlement industry make a distinction between this investment and the even more controversial viatical settlements. With viaticals, the insured individual has a terminal illness. Investors can expect to receive a return in a few short years. Though the insured person in a life settlement is elderly, he may not necessarily be in poor health and death may not necessarily be imminent.
It's easy to see why some people find these investments to be distasteful since a return on investment (ROI) isn't realized until someone dies. Yet the sellers of these policies often welcome the lump sum of cash. There are numerous reasons why an insured individual might want to sell a policy. One of the most common is that the premiums can become a financial burden, especially for elderly individuals who are on fixed incomes. However, if the premiums aren't paid, the policy will lapse and the policyholder will lose both the accumulated cash value and the death benefit. Receiving a lump sum of cash in return for changing the beneficiary can be a financial boon. The buyer continues paying the premiums and eventually receives the death benefit. Only certain kinds of policies can be sold within the life settlement industry. Typically, these are whole and universal life policies that have built up cash value, as an investment component, over time. A term insurance policy, though most often recommended by financial experts, does not build up any cash value. When someone who has term insurance passes away, the beneficiary receives only the death benefit. There is no investment component as part of term insurance. This is why the premiums are much less expensive.
As the life settlement industry has grown in recent years, more companies have jumped on the bandwagon. Exchanges have even been formed, similar to the exchanges that transact the trading of commodity futures. Company owners and managers have established relevant business functions such as managing the payment of premiums, tracking and reporting of purchased policies, and the processing of death claims. Some financial experts tout the benefits of investing in these settlements to individual investors. For example, some experts claim that settlements are low-risk because they are backed by reputable and financially stable companies the issuers of the policies. Many of these companies are household names. Additionally, investments in the life settlement industry are not affected by rising interest rates, global economic conditions, natural disasters, or geopolitical events (such as acts of terrorism). Any of these factors can, and do, affect the value of typical investment products such as stocks and bonds. For this reason, settlements may be a legitimate addition to an already well-diversified portfolio.
King Solomon, personifying wisdom, writes: "I love them that love me; and those that seek me early shall find me. Riches and honour are with me; yea, durable riches and righteousness. My fruit is better than gold, yea, than fine gold; and my revenue than choice silver" (Proverbs 8:17-19). Wisdom and prudence require that individuals save money during their employment years so that they have financial security in retirement. Investing choices can mean the difference between comfort and pinching pennies in the future. Someone who is interested in investing in the life settlement industry should carefully consider both the investment companies and the various options. Potential investors should only put their money with established companies with a proven track record of acceptable ROIs. It's preferable to invest with publicly traded companies because they are required by federal law to file specific reports containing accurate financial information with the Securities and Exchange Commission (SEC). These reports are available for public viewing and are a great resource for potential investors.
The life settlement industry offers three basic investment opportunities to individual investors. One is similar to a typical bond and is often referred to as a death bond. Life settlement funds are similar to typical mutual funds in which individuals purchase shares. Finally, individuals can purchase a direct fractional ownership of a particular policy. This third option is the only one that provides the investing individual with direct ownership of an actual policy. There are pros and cons to investing in each of these options which interested individuals should thoroughly research before making a final decision. As the baby boomer generation ages, many will be opting to sell policies, especially when the offered purchase price exceeds the cash surrender value. Before accepting such an offer, though, the policyholder needs to demonstrate wisdom, just like the potential investor. There may be tax consequences to selling a policy or other estate management concerns. Seeking the advice of a reputable tax advisor or financial counselor is always advised before exchanging a policy for cash. The life settlement industry seems to be gaining respectability as it matures and may prove beneficial to both investors and policyholders.
It's easy to see why some people find these investments to be distasteful since a return on investment (ROI) isn't realized until someone dies. Yet the sellers of these policies often welcome the lump sum of cash. There are numerous reasons why an insured individual might want to sell a policy. One of the most common is that the premiums can become a financial burden, especially for elderly individuals who are on fixed incomes. However, if the premiums aren't paid, the policy will lapse and the policyholder will lose both the accumulated cash value and the death benefit. Receiving a lump sum of cash in return for changing the beneficiary can be a financial boon. The buyer continues paying the premiums and eventually receives the death benefit. Only certain kinds of policies can be sold within the life settlement industry. Typically, these are whole and universal life policies that have built up cash value, as an investment component, over time. A term insurance policy, though most often recommended by financial experts, does not build up any cash value. When someone who has term insurance passes away, the beneficiary receives only the death benefit. There is no investment component as part of term insurance. This is why the premiums are much less expensive.
As the life settlement industry has grown in recent years, more companies have jumped on the bandwagon. Exchanges have even been formed, similar to the exchanges that transact the trading of commodity futures. Company owners and managers have established relevant business functions such as managing the payment of premiums, tracking and reporting of purchased policies, and the processing of death claims. Some financial experts tout the benefits of investing in these settlements to individual investors. For example, some experts claim that settlements are low-risk because they are backed by reputable and financially stable companies the issuers of the policies. Many of these companies are household names. Additionally, investments in the life settlement industry are not affected by rising interest rates, global economic conditions, natural disasters, or geopolitical events (such as acts of terrorism). Any of these factors can, and do, affect the value of typical investment products such as stocks and bonds. For this reason, settlements may be a legitimate addition to an already well-diversified portfolio.
King Solomon, personifying wisdom, writes: "I love them that love me; and those that seek me early shall find me. Riches and honour are with me; yea, durable riches and righteousness. My fruit is better than gold, yea, than fine gold; and my revenue than choice silver" (Proverbs 8:17-19). Wisdom and prudence require that individuals save money during their employment years so that they have financial security in retirement. Investing choices can mean the difference between comfort and pinching pennies in the future. Someone who is interested in investing in the life settlement industry should carefully consider both the investment companies and the various options. Potential investors should only put their money with established companies with a proven track record of acceptable ROIs. It's preferable to invest with publicly traded companies because they are required by federal law to file specific reports containing accurate financial information with the Securities and Exchange Commission (SEC). These reports are available for public viewing and are a great resource for potential investors.
The life settlement industry offers three basic investment opportunities to individual investors. One is similar to a typical bond and is often referred to as a death bond. Life settlement funds are similar to typical mutual funds in which individuals purchase shares. Finally, individuals can purchase a direct fractional ownership of a particular policy. This third option is the only one that provides the investing individual with direct ownership of an actual policy. There are pros and cons to investing in each of these options which interested individuals should thoroughly research before making a final decision. As the baby boomer generation ages, many will be opting to sell policies, especially when the offered purchase price exceeds the cash surrender value. Before accepting such an offer, though, the policyholder needs to demonstrate wisdom, just like the potential investor. There may be tax consequences to selling a policy or other estate management concerns. Seeking the advice of a reputable tax advisor or financial counselor is always advised before exchanging a policy for cash. The life settlement industry seems to be gaining respectability as it matures and may prove beneficial to both investors and policyholders.
Life Settlement Industry
![]()
Reviewed by Anonymous
on
4:42 PM
Rating:
