Life Settlements Are Trending, But Are They Legal?
A major concern for senior citizens in our society is outliving their financial resources. Many seniors worry that they will become a financial burden to loved ones in their later years. This concern has caused spawned the life settlement industry.
What Is A Life Settlement
A life settlement is the sale of an unwanted life insurance policy. The seller of the policy will receive a lump sum amount of money and the buyer will become owner and beneficiary of the policy. As the owner of the policy, the buyer becomes responsible for the payment of all future premiums.
This arrangement provides seniors with a financial boost that is considerably more than the cash surrender value of the policy while also providing a future profit for the buyer.
The growing popularity of life settlements for seniors and investors alike has caused many to seek more information regarding this type of financial arrangement. Many have also questioned the legal and ethical merits of life settlements.
History of Life Settlements
The United States Supreme court determined in 1911 that life settlements were private property and could be legally transferred, based on the case of Grigsby versus Russell. This marked what would be the beginning of the secondary market for life insurance policies.
Prior to these events, holders of unwanted life insurance policies could either sell the policy back to the life insurance company at a loss or allow the policy to lapse and receive no compensation for it.
Benefits to Investors
Life settlement investing offers a number of exciting potential benefits.
- Value of life settlements unaffected by other markets
- Major life insurance companies are amongst the most stable corporations in America
- Provides portfolio diversification
- No active management required
- Regulated by the state department of insurance
Risks to Investors
Risks associated with investing in life settlements are minimal but do exist.
- Non-liquid asset
- The longer the insured lives, the less value the policy holds
Legal And Moral Concerns
The sell and purchase of life settlements in the United States are completely legal but still make some investors uneasy due to moral and ethical concerns. Many investors are simply turned off by the idea of profiting only at the ending of a human life.
Those who would counter argue this position point out the fact that death is a part of life and that investing in life settlements provide seniors with a living benefit to their life insurance policies.
Most people familiar with the life settlement market believe these transactions to be a win for all parties involved. Seniors are given access to much-needed funds to provide them with financial security in their later years. And investors get to purchase a stable buy and hold asset with good profit potential. The growth of the life settlement market should continue for the foreseeable future.