Senior Life Settlement: Is it Right for You?

A difficult economy, growing unemployment and a volatile stock market have made the future even more uncertain for those who have retired or will retire soon. For those needing more money beyond pensions or other savings (especially seniors who may need to finance assisted living settings) life settlements can be an attractive option.

Life settlements work by turning life insurance policies into assets that policyholders sell for a given sum to a third party. This can create value for policies that seniors would otherwise have to surrender, allowing them instead to sell it for a greater value. After the transaction the buyer becomes responsible for paying the premiums and ultimately becomes the beneficiary, and in return pays the policyholder a sum greater than the cash surrender amount they would have received.

This type of asset can become a particularly attractive option for seniors because the premium payments are often greater than the benefit the policy would bring them. Life insurance is meant as a hedge against the difficult situations family members would face in the case of a policyholder’s unexpected death, but as seniors grow older there is less need to protect against this situation.

How have life settlements grown so popular?

The modern market for such a practice started as a byproduct of an unfortunate medical epidemic. As AIDS grew in prominence in the 1980s, many young victims of this disease needed money to pay for expensive medical expenses, leading them to sell whatever assets they could. Because they faced an early death, the risk-adjusted value of their policies could be much greater than the surrender value, making selling the policy an attractive option.

The option to sell life insurance policies has gained even more popularity in the past 10 years, after The National Association of Insurance Commissioners released a report establishing guidelines for business practices. This led a number of organizations to begin to purchase life insurance policies. Today the market for life settlement policies is growing, and with close to 20 percent of policies of those older than 65 having greater economic value than cash surrender value, one can see why this would be an attractive option for seniors

What is involved in a life settlement?

To complete a life settlement, paperwork is required by both policyholder and the insurance company and the entire process takes up to six weeks. The policy is reviewed and several investors can make offers, which the policyholder can then review and decide to accept or reject. The sale price for the policy goes into an escrow account until the process is completed.

How do life settlements help seniors face rising care costs?

With high of assisted living, some nursing home settings can cost seniors as much as $9,000 per month with more independent living generally ranging from $1,800 to $2,400 per month. The cost has led to more seniors looking for outside revenue to help pay. The situation is even more difficult given that long-term health care costs rose 5.6 percent and assisted-living expenses are driving much of this increase. And with only seven million seniors holding long-term health care insurance, life settlements should continue to grow in popularity as a way to help pay for assisted living.

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