The life settlement and viatical settlement industry has been growing steadily as an investment market since its inception in the 1980s. A proven method to derive cash value from unwanted insurance policies, life and viatical settlements have given seniors and the terminally ill a tool to mitigate difficult financial situations in their twilight years.
Often, people find themselves in situations they never could have imagined. For this reason, they try to build up investments and savings to soften the blows of unexpected mishaps. Life insurance is one of these investment tools that are purchased for the hypothetical situations that can arise. But until fairly recently, it has been difficult to derive any tangible value from a life insurance policy while the insured is still alive. The life insurance companies have been willing to provide a cash out value for policies but these amounts barely refund the years of premium costs. This was the impetus behind the life settlement and viatical settlement industry, to offer real value for unwanted policies in excess of the cash out values offered by the insurance companies.
It should come as no surprise that the cost of long term care and medical costs are constantly increasing. Unfortunately, this leaves a lot of people in situations where they have to make sacrifices regarding their quality of care. Life settlements provide an option for the infirmed to cover their own costs and not have to sacrifice care or medicine. In fact, over 50% of life and viatical settlements are used to defray the costs of medical expenses and long term care. It is important to patients and seniors to be able to have extra capital to pay for medical bills and other expenses that may arise from being ill. These funds can also be used to spend time with family or make sure loved ones are taken care of when the life expectancy is not long.
In some circumstances life insurance policies lose their luster as investment vehicles. Purchased to provide for loved ones after the passing of a parent or spouse, some policies actually outlast their usefulness. Adult children of seniors may not be in need of, or even interested in, being the beneficiary of a policy (as this may have huge tax implications). In other cases, the insured has outlived the ones for whom the policy was meant to provide, which essentially renders the policy useless. Before there was the option of life settlements, some of these policies would be surrendered or simply allowed to lapse, wasting all those years of premium payments. Life settlements can allow the holders of these policies the option to derive a retirement income from their years of investment.
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Image courtesy of Marin / FreeDigitalPhotos.net”.
Buying life settlements is always a risk. You gotta ask – will the life insurance company be around to pay the claim? If there is a risk that it will not, investors can be blindsided one other way. And that risk is there for sure. What might have happened to those AIG life policies if the US Government had not lent a helping hand? Then we can mention Genworth, Hartford, Lincoln National and a series of other insurers who – for a while – looked like they might not make it. Oh, I forgot – the various State insurance schemes will step in to save the day, right? Most (all?) are seriously under-capitalized to backstop some big life companies going under. And why should they make good anyway when the insurance policy has been securitized and now is in the hand of third parties and not state residents? They won’t be dipping into their general funds in the near future to make good granted their current dire straits, will they? No, this “new” investment idea should be a non-starter until confidence is brought back to the life insurance industry, and any investor who steps in is putting his/her capital into serious risk.