Life Settlements vs. Life Insurance Policy
Life settlements are an increasingly popular way to deal with life insurance benefits. A life settlement is basically the exchange of an outstanding life insurance policy for a cash surrender value less than the cash surrender value, with all related tax benefits. Essentially, the insurance company sells your life insurance benefit for a price less than the current market value of the policy. If you live past the age of ninety-five, you may also be able to claim dividends from your life insurance policy. In this way, life settlements allow you to realize tax-free income at the time of your death.
A life settlement is an exceptional financial transaction between an insurance policy owner and a third-party life settlement provider. Essentially, the insurance policy holder assumes the responsibility for continuing premiums and receives a death payout when the covered person dies. Once, the covered individual passes away, the life settlement provider then sells the policy back to the insurance provider at the current market value. The life settlement provider will be responsible for making the needed payments to the beneficiaries.
Life settlements also work in the reverse direction. For instance, if a person is terminally ill and in need of medical attention, they can sell their policies to a life settlement provider. After all, in most states death benefits are only paid out upon death. The laws governing life settlements require that such transactions take place through a life insurance company or other federally authorized entity. Additionally, the laws do not permit a person to sell policies themselves. Finally, such sales cannot exceed the current value of the policies.
When life settlements are made, it is often between a single investor and a group of investors. One of the primary reasons why these types of transactions are attractive for policy owners is because they provide investors with a form of passive income. Some of the more prominent investors in this industry are institutional investors such as mutual funds and large pension funds. Policy owners will sell their policies to investors in return for a lump sum payment. The reason why the insurance providers and the insurance company administrators sell the policies is because it allows them to receive a regular stream of income from the policy owners.
Policy owners can also sell their policies directly to other individuals who need them. Most life settlements involve large payouts, and in many cases, these individuals need the money now. Many investors buy policies in order to allow policy owners to build cash by utilizing the money in their life settlements. When these investors need the money now, they will often hire an investment firm to purchase the settlements for them.
Many investors will purchase policies in combination with short sales or annuities. In order to complete the transaction, both parties must agree. In a short sale transaction, the short sale amount is used to pay down the face value of the policy. This process is known as a “short sale”. In an annuity transaction, when the policyholder retires the premium will be paid directly from the life settlements.
If a company has no life settlements, the insurance company may elect to institute a program in which they will make small payments to the policyholders instead. These payments will be made until the policyholders have retired. The goal is to ensure that these individuals do not have to repay the settlement amount. Many investors prefer this arrangement over receiving a lump sum distribution. Life settlements are only one component of many investment options available to policyholders. Many companies offer a variety of financial products and services to help their clients manage their finances.
Many investors choose to sell their life settlements for cash value instead of receiving a lump sum distribution. When a person retires, they can receive a cash amount that is less than the total of their life insurance policy. When choosing a life insurance policy, individuals should always compare the cash value annuity rate with others to make sure they are getting the best rate possible. It is important to remember that the life settlements are just one part of a long term investment plan. By investing in other aspects of their life, individuals can ensure that they have an adequate income source even after they are no longer working.