Insurance Settlements, the Next Wall Street Collapse, or a Good Deal for You?

Remember reverse mortgages? Next up,  reverse life insurance, or life settlements. Life settlements refers to the sale of a life insurance policy by its owner to an investor who will collect the death benefit. From the same group that took reasonable mortgages, and packaged them as investment vehicles, we now have insurance settlements, and the same “packaging” that brought down Wall Street, may strike again. Check out this video from a recent Good Morning America.

So, how does this work?

Life settlements should be considered by anyone who has a life insurance policy that is no longer needed or wanted, or where the burden of premium payment has become too great.  For example; a person who bought a policy while they had young children who are now grown up, or a policy purchased by an older person with relatively high premiums that they can no longer afford. There are many investors who purchase life settlements, as well as many brokers who arrange for sales. While the most desirable policies from an investor standpoint are Universal Life Policies, other types of policies, such as term policies, can be sold. These differ from “Viatical” settlements, which are the purchase of a policy from someone who is terminally ill at an unfair price.  This practice is highly regulated and can be prohibited in many circumstances.

If you think a life settlement might be for you, proceed with caution. Please make sure you have a trusted lawyer, or reputable financial advisor to guide you. As with so many things connected with seniors and money, there are any number of scams connected with life settlements. One of the most common, involves someone asking you to buy a life insurance policy and offering to pay the premiums in exchange for that person splitting profits from the sale of the life settlement with you. These practices are highly questionable from a regulatory standpoint and subject to challenge by insurers.

My thanks to Darren L. Ofsink of Guzov Ofsink, LLC for his expertise in this field, and especially his patience in making this understandable  to me, and I hope, all of you.
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