WHAT IS A LIFE SETTLEMENT? – THE BASICS
Most individuals are unfamiliar with Life Settlements. As a result many have turned to ALIR to provide necessary education on this powerful financial tool.
Life Settlements are a financial instrument that converts the value of a life insurance policy into immediate liquidity. In order to facilitate these transactions life insurance settlement Providers (the buyer) are connected with life insurance policy owners (the seller). The Provider purchases the policy from the owner, takes over premium payments, and becomes the beneficiary of the policy. At that point the seller is released from the financial burden of further insurance premiums and is free to utilize the capital raised to meet immediate needs.
Your financial needs change over time. So do your financial options
As most insurance policyholders know, the primary reason for investing in a life insurance policy is the protection of their loved ones and assets. Often though, by the time individuals have reached retirement age financial and life circumstances have changed. As a result many have found the initial function of their life insurance policy is no longer relevant. When this happens it is not uncommon for the policy to become a “dormant asset.”
Retirement is an exciting time that often opens doors to many opportunities and sometimes even a whole new set of priorities. Retirees may want to pay off their mortgage or see their children or grandchildren through college. Some may even want to travel the world. Instead of being free to invest in any of these things, a large amount of their available funds are being directed toward premiums for an under-performing investment. Freeing up the money and eliminating these premiums via a life settlement facilitates greater financial flexibility and countless new opportunities.
A valuable asset
In the past, life insurance policy owners had few options when a change of circumstances called for a reevaluation of their life insurance requirements. Continuing to pay costly premiums for an unneeded policy rarely made financial sense. In addition surrendering the policy for little to no monetary return was not a sound financial and estate planning decision. Individuals were stuck thinking of their insurance policy as an illiquid possession rather than a liquid asset.
Once policyholders secure coverage, they often routinely pay premiums and give little thought to the policy as a powerful source of future liquidity. The policy assumes a misallocated role in their financial portfolio, or is regarded as an expense that must be maintained. What is often not recognized is that as individuals near retirement, their policy can become an appreciating asset with intrinsic value. Via Life Settlements this asset value can be converted into immediate cash value much like other assets, providing timely liquidity.
A history of helping people
The concept of Life Settlements is not new. In 1911, the Supreme Court ruled that life insurance policies are a type of property with value and therefore it was legal to transfer ownership. It has been more than one hundred years since the Supreme Court’s decision, during which the secondary life insurance market has continued to grow and evolve, punctuated by rapid growth in more recent years. With growth has come comprehensive regulation to protect seniors.
Why the increase in popularity? As the economic and cultural climate has evolved over the past century people have begun living longer and needing more out of their retirement. Seniors have been forced to seek options to these unforeseen changes. Some want to travel or enhance their lifestyle. Many have goals to help family members or charitable organizations that they are passionate about. In addition, there’s always the option of using their capital to invest in higher-performing assets.
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