Booming Life Settlement Industry Provides Relief to Seniors in Retirement

There was a very interesting article written in the Los Angeles Times on Wednesday, February 20, 2008, entitled "Treating Death As A Commodity", which brings attention to a growing and popular trend for senior citizens-the life settlement.

In the article, Selma Manheim, 86, was approached by investors who offered her $200,000 cash, in exchange for ownership of a new life insurance policy on her life, that offered a death benefit of $2,000,000 upon her death. The beneficiaries would not be Selma's family, but whoever the new owner of the policy would designate. And to sweeten the pot, the investors would make all the premium payments. Selma's son, a retired tax attorney, gave it a green light. Selma's position was not one of desperation but it gave her pleasure to be able to bestow money upon her grandchildren while she is still alive.

Other scenarios for life settlement candidates might be those living out retirement years on a fixed income, and finding it difficult to manage all of their expenses. As a result, these seniors are forced to make difficult decisions about things they need or want, but can no longer afford. Keep the life insurance policy, or let it lapse? If they don't own their own home then a reverse mortgage-a lifesaver in the right circumstances for cash-strapped seniors-is out of the question.

Enter the Life Settlement transaction, a possible solution for some, providing some very important criteria is met. But what is a life settlement?

Here's how it works:

You sell your life insurance policy that is no longer needed, wanted, or affordable to an investor or company.

The investor or company agrees to continue paying the life insurance premiums.

The investor or company collects the death benefit upon your death.

You receive a cash settlement amount which is more than the cash "surrender value" of your policy.

The settlement amount is determined by a number of factors, including the original amount of life insurance, your life expectancy, and the cost of the premiums, to name a few.

But not everyone is ecstatic over this growing industry that offers substantial relief in the right circumstances to seniors.

Insurance companies may be pouting over life settlements, as they are obligated to pay out the death benefit on a life insurance policy (per their contracts) to the designated beneficiaries, whether or not the ownership of that policy has changed. The premiums have been paid up; now it's time for the insurance company to honor their end of the deal!

So why the pouting, you may wonder?

According to the Los Angeles Times article, "...these life settlement agreements have riled insurance companies and threatened their profits. For years, insurance companies have been a monopoly, sitting back and collecting premiums on policies that consumers allow to lapse."

This results in windfall profits over the years to insurance companies, as they've always been able to collect premiums for years and years but did not have to pay out the death benefit in a significant number of the cases, as so many people simply let their policies go. Good deal for them!

So, how big a business is the life settlement industry? Experts predict that total volume could go as high as 20 billion dollars this year alone. That's a lot of billions.

There are restrictions, however. And this should never be undertaken without the sound advice of a trusted professional. There may be tax ramifications, estate planning issues, limits on the ability to buy future policies, and other considerations that need to be weighed. And you want to deal with a reputable company, not someone inexperienced in this arena.

While some may get the "heebie-jeebies" at the thought of wheeling and dealing in such a morbid subject as death, the life settlement industry continues to grow and to offer a creative solution to many struggling seniors today.

After all, we are all living longer and many of us in the baby boomer generation are fast approaching retirement years. Many are looking at fixed incomes. With Social Security on the brink of failure, and company pensions going the way of the Speckled Cormorant, it's nice to have this option!

I welcome your comments.

J.F. Ranhofer

www.TurboChargeYourRetirement.com

www.TheRetirementSage.com