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LIFE INSURANCE SETTLEMENTS:
Life Insurance Settlements allow a life insurance policy owner to sell an
existing policy to a financial institution in exchange for an immediate lump sum
cash settlement. The amount paid for the policy is a discounted percentage
of the policy's death benefit and represents the present day value of the
policy. This purchase price is determined by considering the insured's
estimated mortality (life expectancy) and the associated coverage.
Life settlements can
be real saviors for people whose life insurance policies will expire if the
status quo is maintained, and who cannot (or are unwilling to) put additional
cash into the policy to keep it alive. Instead of the policy eventually
becoming worthless, or being limited to the policy's existing and perhaps low
cash value, they instead get a nice, current cash settlement in excess of the
policy's cash value
Insurance companies hate the life settlement industry because it means fewer
policies lapse before the death benefit it paid thereby reducing the life
insurance companies' profitability that traditionally anticipates high lapse
rates.
Insurance companies would instead prefer that policy owners simply surrendered their policies for the cash value of their policies, thus creating a windfall for them since the amounts paid during the life of the policy for "death benefits" turned out to be free money to the insurance companies.
A life settlement means that the current policy owner will receive money for selling their policy, and the policy owner is not required to put up any cash or make any kind of investment. The current policy owner receives, very simply, a large lump sum of cash for selling the policy, and thereafter has no further financial obligations
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