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Understanding Life Settlements

Life insurance policies can have many different types of value added aspects. They have the death benefit, the possibility of cash value accumulation, and accelerated benefit and other riders. But there’s one more benefit that life insurance policies offer, an asset that you can sell to another investor.

A life settlement is the process of selling your life insurance policy to a buyer. He or she will pay a certain amount for your policy, usually more than your cash value, depending on your age and life expectancy. When you die, your family will get none of the death benefit, the buyer of your insurance policy will.

The process of selling a life insurance policy initially started with something called a “Viaticle Settlement.” Viaticle settlements were used to buy life insurance policies from individuals who were terminally ill. They were especially popular in the 1980′s when the Aids epidemic was in full swing.

While there are still companies that take part in viaticle settlements, the more popular option these days is a life settlement. Since your death is an unsure thing in terms of date and time, you won’t get as much in a life settlement as you would doing a viaticle settlement because there is a risk that you might live a long time-remember the buyer of your policy will only get a return on his or her investment when you pass away and the death benefit is transferred to him or her.

Life settlements can be a great help to individuals who need money now. It is important to remember that once you sell your policy through a life settlement, there will be no death benefit for your beneficiaries. In addition, you may not be able to purchase additional life insurance policies because of your health, life expectancy or death benefit amount already issued.

April 7, 2010

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