Excerpt from: Life Settlement Update
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| May 29, 2008 | | Now seniors can get the life insurance they need without fear that they are locked in to an expensive policy. | The decision to buy life insurance is being made easier for seniors by having a life settlement option available. For almost 20 years I have recommended to seniors that they should purchase enough life insurance to cover estate and other taxes when they die. These estate taxes will wipe out up to 50% of a person's wealth. No matter how well they invest or how large they build their fortune, half of it will go to the government.
Roughly speaking, life insurance costs about 10% of the total death benefit. The death benefit is a tax free sum paid to the beneficiaries. For $100,000, a senior can buy about $1M in life insurance. To realize the equivalent value by investing, a senior would have to invest that same $100,000 well enough to grow to $2M.
As good as the case is for investing in life insurance, the insured client always viewed the life insurance premium as a sunk cost. It is a very substantial annual cost and the insured does not recieve the benefit themselves. In addition, if a senior's circumstances changed and they could not afford the premium, the senior could risk a major loss. The cash surrender value of a life policy is typically far less than the premiums paid
In the last decade or so that has changed thanks to the life settlement market. This large secondary market allows investors to buy a senior's life insurance policy. Secondary markets are normally very positive for consumers. Imagine if there was no secondary market for real estate. How confident would you be spending a large some of money on a house if you knew that you could only sell it back to the builder for a fraction of what you paid? Even if you really wanted the house, it would be a nerve-racking decision. That is exactly what seniors faced when buying life insurance without a life settlement option.
Life insurance for seniors is now an asset just like any other. It can be valued on an open market and sold, if need be. This dramatically changes the mindset of the buyer; they don't see money leaving their pocket as an expense but rather a reallocation of assets that can be converted to cash in a life insurance settlement, should that become advisable.
This phenomenon has melted away the largest impediment for seniors to buy the life insurance they need.
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