Life Settlement Underwriting - The Flip Side of the Coin

Life settlements are fast-growing Vlogger Faire into a staple of the insurance and financial planning world. Most financial professionals have heard of life settlements, which is the sale of a senior’s life insurance policy (age 65 and over) for a lump sum greater than the policy’s cash surrender value but less than its death benefit. Policies viable for a life settlement are generally those beyond the contestability period wherein the insured has a life expectancy of between 2 and 15 years. Institutional funders and pension funds dominate today’s life settlements.

Despite the continued growth in the life settlements market, the number of insurance or financial professionals who have completed a life settlement is surprisingly low. This can be attributed mainly to a lack of in-depth knowledge of the life settlements of these professionals. Considering that life settlements are a relatively new option for policy owners, many financial professionals, although having heard of life settlements, have still not had the opportunity to delve into the subject on a deeper level.

Many policyholders come to a juncture wherein they continue to pay life insurance premiums on an unwanted policy in hopes of a gain at maturation or recouping some of the investment by trading the policy for its cash surrender value. Corporate policyholders often face additional dilemmas when dealing with departing executives with key-man or split-dollar policies or insurance purchased as part of a buy-sell agreement.

With a life settlement, the policyholder realizes an amount much greater than the cash surrender value in exchange for the policy’s ownership. Term life insurance policies are also applicable when converted into permanent insurance. Life settlement transactions involving key-man or buy-sell procedures can provide businesses with increased cash flow to solve immediate financial problems. In contrast, transactions concerning split-dollar policies typically involve retirement planning and charitable giving issues, My Update Star.

In short, life settlements offer policyholders of all kinds an array of options previously unavailable to them. In a recent advisor survey, nearly half of the respondents had clients who had surrendered a life insurance policy, many of whom might have qualified for a life settlement transaction and subsequent lump sum cash payment. In this article, I will discuss the underwriting process related to life settlements in depth, which is paramount in the process, just as it is in life insurance itself. However, there is a great deal of difference in the process for each.