When the AIDS epidemic erupted in the 1980s, the practice of purchasing a person’s life insurance policy, also known as life settlements, became extremely popular. As those suffering from the deadly disease struggled to pay their medical bills, investors rushed in to purchase their insurance policies.
The investor agrees to pay the premiums on a policy in exchange for a cash payment from the original policyholder. The payout associated with the death of the insured person is the reward for investors.
In recent years, life settlement has grown in popularity among older adults who may not want to pay life insurance premiums on policies that will be rendered ineffective.
According to the Life Insurance Settlement Association (LISA), many American seniors, typically those aged 70 and up, are discovering that life insurance policies that once seemed adequate no longer meet their needs.
Life settlements are sold for a higher price than their cash surrender value but for a lower price than their net death benefit. They can be an important option for those who previously believed they had no options.
Life settlements offer consumers payoffs that can be significantly greater than surrendering a policy rather than continuing to pay premiums on a policy that no longer serves its original purpose. They provide a reasonable and profitable exit strategy that addresses policyholders’ financial objectives.
According to Tony Steur, a well-known analyst on life insurance products, state laws, and insurance regulations must be considered before selling a policy. If you are terminally ill, a viatical settlement is the best option because it may provide more options than a life settlement. There could also be tax implications because not all proceeds are tax-free.
As a result, before making decisions about your life insurance policy, you should consult with your financial adviser.