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 Posted: Tue Jan 06, 2009 10:52 am Post subject: Life settlement - Is it worth going for a life settlement? |
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Where do we sell our life insurance policies? What do the life settlement buyers look for?
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Rhinos2332
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| Posted: Tue Jan 06, 2009 11:08 am Post subject: |
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| I'd say selling one's life settlement would make sense if the premiums are becoming a burden and/or there is a need for money or if you think you may no longer need the policy probably due to absence of any terminal illness.However, if you indeed want to sell it , you may want to consider the secondary market because that could fetch you more money than selling it at it's surrender value. |
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Unicorn
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| Posted: Tue Jan 06, 2009 11:16 am Post subject: |
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| What is a secondary market? I hear sometimes the surrender value could really cost a lot. I do not know much on Life settlements but have heard some. Is secodary markets people who buy up these types of policies to later benefit? |
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fireyone
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| Posted: Tue Jan 06, 2009 11:41 am Post subject: |
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Hi Fireyone,
Yes, a secondary market is basically constituted of buyers/investors who are ready to buy insurance policies that would otherwise become a wasted asset and these settlements are mutually beneficial both for the buyer and the seller of the policy because , in financial terms, the settlement could generate more capital for the seller than the surrender value of the policy.Moreover, often,a better policy could be issued that's satisfactory to both the new buyer and the seller. |
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Unicorn
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| Posted: Tue Jan 06, 2009 12:00 pm Post subject: |
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| Yes, and in fact what you suggested is already happening.This is believed to be one of the fastest growing financial services and it makes perfect sense because if you want to sell your policy back to the company, who would then be your sole chance to save a wasted policy, then you stand to make less from your asset .However, if there are people already waiting to benefit from the same policy , then your life settlement becomes an immediate asset! No wonder that several institutional investment houses are getting into it and expanding this market. |
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Unicorn
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| Posted: Tue Jan 06, 2009 12:36 pm Post subject: |
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I'd always sell it if I don't need it anymore. I'm sure it would also be better to sell it if the beneficiaries don't need it. People who're unable to bear the premiums would also prefer to sell it perhaps!
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anonymous00
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| Posted: Tue Jan 06, 2009 12:50 pm Post subject: |
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| Well, yes, in a hypothetical situation , if the kids happen to be the sole beneficiaries and are already earning a good living and if the premiums are too high to afford for a policy from which one doesn't stand to benefit in the foreseeable future , then I'd consider selling it a viable option ,especially , if I get a good settlement against it. |
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Unicorn
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| Posted: Tue Jan 06, 2009 1:18 pm Post subject: |
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Where there is money to be made, there will be investors willing to take that risk, I am sure there are many cases where the person who owns the policy ends up being on the good end of the stick here, I seen a story on the news, it was the first time that I had ever heard of it. The lady lived to be in her eighties, the investors would get their money back but not make a huge profit because they had purchased it such a long time ago. In this case she needed the money and it worked out for her.
Hopefully, these cases would not be sold to the greedy investor that would have headhunters go out and make claim on their policies, that would be a good horror flick wouldn't it? |
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goodnatured
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| Posted: Wed Jan 07, 2009 11:52 am Post subject: insurance |
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| This 'Life Settlement' thing: Doe this go for Term or Whole Life Insurance? I've never heard of this. Can someone explain what this is and how you can 'sell' it? Thanks. |
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sdchargersfan
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| Posted: Fri Jan 09, 2009 5:16 am Post subject: insurance |
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| I din't realize there were alot of 'options' that you may have with Life Insurance. Ya know...........I don't know if it would be a good idea to secure a loan with it ( putting in my '2 cents'). What if you can't pay the loan back and you REALLY need the Life Insurance for other things? |
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sdchargersfan
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| Posted: Sat Jan 10, 2009 9:49 pm Post subject: |
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You can't "sell" a life settlement. You can sell a life insurance policy, which is called a "life settlement". However, not everyone can just sell their life insurance policy, it is a very complicated process and there are certain things that life settlement buyers are looking for:
1. A policy with a high face amount, generally $500k+. However, investors have been buying more smaller face amount policies recently. Due to the costs involved, it can often be not worth the risk for the investors if the face amount is too small or the premium percentage compared to face value is too large (depending on the health of the person who is the insured).
2. Preferably an insured person who is 70 years old or older, or someone who is 60+ years old in extremely bad health.
3. A person whose health has declined significantly from the risk classification their policy was approved at. For instance, someone was issued at Preferred Plus/Super Preferred previously and has since had 2 heart attacks and cancer, and would now be uninsurable or highly rated. In this scenario, they are still at the premium level of a healthy person but their chance of death is much greater.
Obviously, these situations can vary quite a bit, and the higher the chance of death, the more the investors will pay for the policy. The less risk of death, the less they will pay. I have seen offers of anywhere from 1%-40% of face value, so it can vary quite a bit. It is also very difficult to work on a life settlement case without the help of a brokerage facility that can shop the case among different investors for the best offer.
In general, the insured will have to be subject to an evaluation of their life expectancy from an exam, medical records, etc. Many states require special licensing to do a life settlement case, and some states have special requirements for an insured to be able to sell their life policy ("accredited investor" status is a common one). The cases are generally win-win-win for the investors/insured/agent if the life expectancy values are accurate. The investors get a good return on their money, the insured gets a chunk of money for a policy they may have otherwise terminated or let lapse, and the agent can get some very sizeable commissions - namely, a conversion commission if it's a term policy, a commission on part of the life settlement payment, and a commission on selling the person a new policy if that is their intent (the settlement is often used to pay the premiums on a new policy if the person is insurable).
I know that was a long post, but hopefully that helps. |
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dgoldenz
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| Posted: Sun Jan 11, 2009 3:08 am Post subject: insurance |
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| Thanks for the clarity, DGOLDEN. What you said DOES make sense. However.......you would think if you KNOW you are in bad Health, you may want to keep the policy for a 'security blanket'. Knowing you would really need it. |
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sdchargersfan
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| Posted: Sun Jan 11, 2009 3:02 pm Post subject: |
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SDC - People who sell policies are not necessarily always in horrible health. Even someone who is now considered "standard" but was previously considered "Preferred Plus" may be able to sell the policy for a large offer depending on the case. If the person is still considered standard, they could use the proceeds (often $100k+ on a large policy) to purchase a new term or universal life policy to guarantee death benefits forever while the payment from the life settlement is what is funding the yearly premiums.
EX: I work for Corporation ABC and they have a $10 million key person insurance policy on me, then they let me leave the company and give me the option of retaining the $10 million of coverage on my own. I don't feel that I need $10M of insurance, but the company felt that is what I am worth. Perhaps I would only like a $3M policy. If I can sell the $10M policy for $1 million cash and the premiums on the new policy are $50k/year, I have 20 years of premiums already paid that cost me nothing. This is just one example, there are plenty of others. |
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dgoldenz
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| Posted: Mon Jan 12, 2009 2:32 am Post subject: insurance |
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| OOOOIIIIIIICCCCCCCCCCC!! Okey Dokey!! I catcha!...actually DOES makes sense why someone would want to do that. Good example..thanks. |
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sdchargersfan
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| Posted: Mon Jan 12, 2009 9:59 am Post subject: |
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Life settlement is indeed a very good option for the senior citizens to earn cash.
There are times when the senior citizens may need immediate money and would be in position wherein it becomes difficult for them to pay for the premiums. Right then there is no other option for them but to sell-off their life policies.
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anonymous00
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