Considering Life Insurance Settlements When Selling Your Life Insurance Could Be A Good Option

March 30, 2009.

Americans, no doubt have lost nearly half of their savings. Many are looking at cutting expenses to survive the economic downturn. Seniors, lacking the promise of living another forty years to recover their losses, are considering cashing in their life insurance policies to get by, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer.

Originally, the viatical settlements industry, also known as life settlements, was born in the 1980s in response to the AIDS crisis. Dying patients desperately needed cash to pay for expensive treatment and sold their policies. As AIDS became a more treatable disease, the industry expanded to include other terminal illnesses. People suffering from cancer, heart disease, Alzheimer's disease and other progressive illnesses, as well as elderly people in need of funds for assisted living, found life settlements to be a useful source of immediate cash. See www.darrasnews.com.

Darras says, "Today, the industry is booming. As life insurance premiums remain substantial, even on policies sold 20 or 30 years ago, continuing to pay for these policies does not have the investment return once projected. With people living longer, life insurance for many over age 60 has become a burdensome expense."

Life settlements offer a solution to policyholders. Here's how they work:

Instead of simply allowing a life insurance policy to lapse or taking the cash value, a policyholder who opts for a life settlement should receive more cash than available in the policy's surrender value. Because the true value of the life insurance is redeemable upon death, insureds can benefit more by realizing that value now, when they need the money and while there is a market for their policy, says Darras.

"The dollar value an individual receives when selling his or her life insurance policy to a company for a deep discount, is determined based their current medical situation and on life expectancy; the shorter your life expectancy, the higher the payout. The company or investors take over payment of premiums and collect the full benefits when the insured dies. If you are healthy and relatively young, the payout may not be worth the trade off," says Darras.

"The dollar value an individual receives when selling his or her life insurance policy to a company for a deep discount is determined based their current medical situation and on life expectancy, the shorter your life expectancy, the higher the payout. The company or investors take over payment of premiums and collect the full benefits when the insured dies. If you are healthy and relatively young, the payout may not be worth the trade off," says Darras.

Once a life settlement is finalized, policyholders often purchase long-term care to help supplement their health care at the end of their lives. They also consider purchasing annuities so they receive a steady stream of income from a specified annuity plan.

"If you are a senior, considering a life settlement, think long and hard about how the generated funds can be best used as you plan for your future. Always research carefully the company you are working with and know their financial history and get sound legal advice before taking such a big step," says Darras.