A life insurance policy is one of the most valuable assets many Americans will ever own. Unfortunately, far too many consumers are unaware they have the right to sell a life insurance policy through what is known as a life settlement transaction. As a result, billions of dollars worth of life insurance is “irrationally lapsed” each year.
So, for those many Americans who own life insurance, education is the key to making a rational economic decision. In many cases, selling a policy makes the most sense. However, each situation is different, and the owner of the insurance policy – as well as the beneficiaries -- must evaluate all options.
I have noticed the emergence of a few articles online that raise objections about life settlements, with regards to privacy concerns, transactions cost and tax consequences. While these are valid concerns, each of these can be carefully managed if policy owners work with an insurance, financial and/or legal advisor who has proven experience.
There are strict regulations in most states regarding the protection of the insured’s privacy and, the life insurance settlement industry takes privacy issues very seriously. In most cases, the identity of the insured person or their financial/medical information may not be disclosed unless it is necessary to effect a life settlement contract between the seller and a life settlement provider -- and the seller and the insured have provided prior written consent to the disclosure. In regards to transaction costs, in many states they must be fully disclosed and the policy owner can thereby seek out a reasonably priced intermediary. With respect to tax consequences, they vary from situation to situation, so it is strongly recommend that a policy owner seek professional tax advice prior to accepting any life settlement offers.
When selecting professionals to help with a life settlement transaction, it is always best that policy owners works with members of the Life Insurance Settlement Association (LISA). Members are among the industry’s largest and most respected life settlement companies. They must review and accept both the LISA Bylaws and the LISA Code of Ethics, as well as provide a thorough accounting of their business practices in the industry.
As a proud member of LISA, we had the opportunity to help a policy owner who no longer needed their life insurance. Recently, we were informed of the insured’s death by her husband. His note, which is quoted below, illustrates the benefit that can come from providing liquidity for owners of life insurance:
“I am sad to announce that my lovely wife … had passed away today. We've been together more than … years. As cliché as it sounds, she was truly a remarkable person … a caring mother and a loving wife. I would like to thank you for your assistance in selling our life insurance - It was the right thing to do. We had another long lasting honeymoon with it, without worrying about anything and it help us securing the future.”
For those who decide that selling a life insurance policy is the best option for them, the life settlement market provides the mechanism by which one can monetize the life insurance asset. The money derived from such a sale can pay medical bills, fund a longer than expected retirement, or, as in the case noted above, simply provide the ability to create memories with a loved one.
Selling a policy for some may be the best option. And if you have questions, LISA members are here to help.
About the Author:
Dan Young, CLU, ChFC, CASL, is the Senior Managing Partner of Magna Life Settlements, Inc., a well-established life settlement provider focused on maintaining transparency, risk management and rigorous process control in the purchase of life settlements. Magna is owned by Vida Capital, a vertically integrated asset management company providing longevity contingent investment solutions to institutional and individual investors. Dan is the Vice President, Asset Management and General Counsel of Vida.
In addition to his role at Vida, Mr. Young is an adjunct professor of regulatory law at the University of Texas Law School, Board Member and Chair of the Legal Committee of the Institutional Longevity Markets Association (ILMA), Board Member of the Life Insurance Settlements Association (LISA), and a frequent speaker at life settlement industry conferences. Prior to joining Vida Capital, Mr. Young was the President and CEO of New York Life Insurance Company’s Broker-dealer and Registered Investment Advisor. Mr. Young graduated from Stanford University with Honors and Distinction and from the University of Chicago Law School with Honors.