Anyone done a "Life Settlement"

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crswvc
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Anyone done a "Life Settlement"

Post by crswvc » Sun Dec 16, 2018 9:54 pm

AKA sell my life insurance for cash before I die.

https://www.aarp.org/caregiving/financi ... ments.html

Seems like a better idea then canceling it altogether.

123
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Re: Anyone done a "Life Settlement"

Post by 123 » Sun Dec 16, 2018 10:26 pm

Depending on your situation it could eventually make it harder to get additional or replacement life insurance. A policy that has been sold in a "Life Settlement" situation still counts as an active outstanding policy. Insurance companies may decide that "excessive" insurance, if they will issue it, will come at a higher price.
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crswvc
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Re: Anyone done a "Life Settlement"

Post by crswvc » Mon Dec 17, 2018 12:50 am

123 wrote:
Sun Dec 16, 2018 10:26 pm
Depending on your situation it could eventually make it harder to get additional or replacement life insurance. A policy that has been sold in a "Life Settlement" situation still counts as an active outstanding policy. Insurance companies may decide that "excessive" insurance, if they will issue it, will come at a higher price.
Yes, I saw that in the article.
Has anyone done/considered doing one of these and care to share the situation.

BruDude
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Re: Anyone done a "Life Settlement"

Post by BruDude » Mon Dec 17, 2018 1:10 am

Unless you are 70+ years old and/or have a very short life expectancy, you probably aren’t going to get an offer. Investors want someone with short life expectancy (I.e. pretty much terminal or close to it), a policy guaranteed for life (term insurance must be convertible to permanent - they will base the offer based on the permanent guaranteed cost), and the policy generally needs to have a Standard or better health rating. There aren’t many people who fall into these parameters.

Aside from all that, the tax laws changed so that investors now have to pay tax on the death benefit, and life expectancy reports aren’t as favorable as they used to be a few years ago after a scandal came up where one doctor was basically doing all of the life expectancy evaluations and was way off on most of them.

All of this combined has pretty much killed the life settlement market.

retire2022
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Re: Anyone done a "Life Settlement"

Post by retire2022 » Mon Dec 17, 2018 8:06 pm

crswvc wrote:
Sun Dec 16, 2018 9:54 pm
AKA sell my life insurance for cash before I die.

https://www.aarp.org/caregiving/financi ... ments.html

Seems like a better idea then canceling it altogether.
My parents started a whole life policy when I was little approx mid 1960's its cash value was approx $6000 in 1980 we rolled it over to another life insurance policy and I contributed with protection of 180K. Hindsight in those days it was not worth getting a policy for children because the likelihood of me expiring was not probable. Nevertheless, during the 1980's the interest rates were high, and cash value grew to 102,000 in 2014.

I decided to cash out on the value of the life insurance policy, the principal was 29K of which I was taxed on 79K as capital gain. It was worth doing at 54, no longer needed the policy and term life is cheaper, no kids, nor spouse.

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ThereAreNoGurus
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Re: Anyone done a "Life Settlement"

Post by ThereAreNoGurus » Sat Sep 07, 2019 7:42 pm

crswvc wrote:
Sun Dec 16, 2018 9:54 pm
AKA sell my life insurance for cash before I die.

https://www.aarp.org/caregiving/financi ... ments.html

Seems like a better idea then canceling it altogether.
Did you take any action?
Trade the news and you will lose.

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Re: Anyone done a "Life Settlement"

Post by bsteiner » Sat Sep 07, 2019 8:30 pm

If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.

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ThereAreNoGurus
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Re: Anyone done a "Life Settlement"

Post by ThereAreNoGurus » Sat Sep 07, 2019 8:43 pm

bsteiner wrote:
Sat Sep 07, 2019 8:30 pm
If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.
Thx for the response bsteiner. I'm not the OP, of course, but I was curious how much one could get.

Whole Life was the dumbest financial move I ever made (so far). I'm reminded of how dumb it was monthly. :oops:

The death benefit is roughly 224K with a net cash value of 103K with an annual premium of 2K. Was wondering if I could get more than the NCV by selling it to one of those agencies, but it does not sound like it since, as far as I know, I'm in decent health.

Would not be overjoyed paying the income tax and cap gains either.

Again was just wondering whether I should keep paying or dump it. I don't need the policy, but don't want to give away money either.
Trade the news and you will lose.

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Stinky
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Re: Anyone done a "Life Settlement"

Post by Stinky » Sat Sep 07, 2019 10:17 pm

ThereAreNoGurus wrote:
Sat Sep 07, 2019 8:43 pm
bsteiner wrote:
Sat Sep 07, 2019 8:30 pm
If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.
Thx for the response bsteiner. I'm not the OP, of course, but I was curious how much one could get.

Whole Life was the dumbest financial move I ever made (so far). I'm reminded of how dumb it was monthly. :oops:

The death benefit is roughly 224K with a net cash value of 103K with an annual premium of 2K. Was wondering if I could get more than the NCV by selling it to one of those agencies, but it does not sound like it since, as far as I know, I'm in decent health.

Would not be overjoyed paying the income tax and cap gains either.

Again was just wondering whether I should keep paying or dump it. I don't need the policy, but don't want to give away money either.
I’d just call one or more of the life settlement companies on the internet and ask them what your policy is worth.

My only experience in this area is asking about my term policy. But it was just a 10 year term, and I’m in good health, so I got a quick response of “no interest”

But the only way you’ll know using you ask. Let the Board know how it turns out for you.
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Re: Anyone done a "Life Settlement"

Post by cheese_breath » Sat Sep 07, 2019 10:31 pm

I don't want anyone other than my wife hoping I die soon. :D
The surest way to know the future is when it becomes the past.

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ThereAreNoGurus
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Re: Anyone done a "Life Settlement"

Post by ThereAreNoGurus » Sat Sep 07, 2019 10:36 pm

Stinky wrote:
Sat Sep 07, 2019 10:17 pm
ThereAreNoGurus wrote:
Sat Sep 07, 2019 8:43 pm
bsteiner wrote:
Sat Sep 07, 2019 8:30 pm
If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.
Thx for the response bsteiner. I'm not the OP, of course, but I was curious how much one could get.

Whole Life was the dumbest financial move I ever made (so far). I'm reminded of how dumb it was monthly. :oops:

The death benefit is roughly 224K with a net cash value of 103K with an annual premium of 2K. Was wondering if I could get more than the NCV by selling it to one of those agencies, but it does not sound like it since, as far as I know, I'm in decent health.

Would not be overjoyed paying the income tax and cap gains either.

Again was just wondering whether I should keep paying or dump it. I don't need the policy, but don't want to give away money either.
I’d just call one or more of the life settlement companies on the internet and ask them what your policy is worth.

My only experience in this area is asking about my term policy. But it was just a 10 year term, and I’m in good health, so I got a quick response of “no interest”

But the only way you’ll know using you ask. Let the Board know how it turns out for you.
Sure, guess it can't hurt to ask for quotes.

Before posting here, I read something that claimed these life insurance settlement companies generally purchased policies for more than the cash value but less than the death benefit. So I was encouraged, but after bsteiner's post it got me thinking that the reason for that is probably because they are only going to buy policies from people with failing health. Makes sense. So I gave up... but yeah, it can't hurt to ask. Thx.

Edited to add:

Good one cheese_breath! (Pssst... wanna buy an existing policy? :D )
Trade the news and you will lose.

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Stinky
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Re: Anyone done a "Life Settlement"

Post by Stinky » Sun Sep 08, 2019 5:28 am

ThereAreNoGurus wrote:
Sat Sep 07, 2019 10:36 pm
Stinky wrote:
Sat Sep 07, 2019 10:17 pm
ThereAreNoGurus wrote:
Sat Sep 07, 2019 8:43 pm
bsteiner wrote:
Sat Sep 07, 2019 8:30 pm
If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.
Thx for the response bsteiner. I'm not the OP, of course, but I was curious how much one could get.

Whole Life was the dumbest financial move I ever made (so far). I'm reminded of how dumb it was monthly. :oops:

The death benefit is roughly 224K with a net cash value of 103K with an annual premium of 2K. Was wondering if I could get more than the NCV by selling it to one of those agencies, but it does not sound like it since, as far as I know, I'm in decent health.

Would not be overjoyed paying the income tax and cap gains either.

Again was just wondering whether I should keep paying or dump it. I don't need the policy, but don't want to give away money either.
I’d just call one or more of the life settlement companies on the internet and ask them what your policy is worth.

My only experience in this area is asking about my term policy. But it was just a 10 year term, and I’m in good health, so I got a quick response of “no interest”

But the only way you’ll know using you ask. Let the Board know how it turns out for you.
Sure, guess it can't hurt to ask for quotes.

Before posting here, I read something that claimed these life insurance settlement companies generally purchased policies for more than the cash value but less than the death benefit. So I was encouraged, but after bsteiner's post it got me thinking that the reason for that is probably because they are only going to buy policies from people with failing health. Makes sense. So I gave up... but yeah, it can't hurt to ask. Thx.

Edited to add:

Good one cheese_breath! (Pssst... wanna buy an existing policy? :D )
bsteiner is correct. These settlement companies are not altruistic - they are in it for the money. They will receive the death benefit when you die, so they need to factor in your personal odds of death in determining how much to pay for your policy. The closer you are to death, the more they will pay (theoretically, at least). But never more than the face amount.

Kinda morbid, isn’t it ......
It's a GREAT day to be alive - Travis Tritt

MarkerFM
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Re: Anyone done a "Life Settlement"

Post by MarkerFM » Sun Sep 08, 2019 7:42 am

ThereAreNoGurus wrote:
Sat Sep 07, 2019 8:43 pm
bsteiner wrote:
Sat Sep 07, 2019 8:30 pm
If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.
Thx for the response bsteiner. I'm not the OP, of course, but I was curious how much one could get.

Whole Life was the dumbest financial move I ever made (so far). I'm reminded of how dumb it was monthly. :oops:

The death benefit is roughly 224K with a net cash value of 103K with an annual premium of 2K. Was wondering if I could get more than the NCV by selling it to one of those agencies, but it does not sound like it since, as far as I know, I'm in decent health.

Would not be overjoyed paying the income tax and cap gains either.

Again was just wondering whether I should keep paying or dump it. I don't need the policy, but don't want to give away money either.
Another option to look into would be to convert the policy to fully paid so you eliminate the annual premium. The death benefit would go down, but at least you won't be paying more in.

desiderium
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Re: Anyone done a "Life Settlement"

Post by desiderium » Sun Sep 08, 2019 6:40 pm

Life settlements are an investment market, and fundamentally work mathematically like life insurance
The market value of the settlement is based on a discount model, say 12-15% estimated annual return on death benefit less premiums paid, based on actuarial estimation of lifespan.
You need to be pretty old and/or have health issues to be of interest and sufficiently predictable risk, like 85+. Also the policy value needs to pay enough to make the transaction costs worthwhile
Surrender value of your policy to the life insurance company is based not on market value but on your contract, premium history etc and in some cases may be worth substantially less.
This is a good article on life settlements from the investment side: http://www.glenndaily.com/lifesettlementfunds.htm

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Re: Anyone done a "Life Settlement"

Post by BruDude » Sun Sep 08, 2019 8:01 pm

It's pretty rare to find a viable life settlement case where an investor actually wants to complete the transaction. You need to be close to death, generally life expectancy less than 5-7 years, and your policy needs to have a very inexpensive premium guaranteed to at least age 100 compared to the death benefit. If you are healthy enough to qualify for a new life insurance policy, you are almost certainly not unhealthy enough to qualify for a life settlement.

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ThereAreNoGurus
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Re: Anyone done a "Life Settlement"

Post by ThereAreNoGurus » Mon Sep 09, 2019 11:35 pm

MarkerFM wrote:
Sun Sep 08, 2019 7:42 am
ThereAreNoGurus wrote:
Sat Sep 07, 2019 8:43 pm
bsteiner wrote:
Sat Sep 07, 2019 8:30 pm
If you’re in sufficiently below average health that someone will pay you more than the cash surrender value to buy your policy you should probably keep it if you can. The buyer needs a higher expected return to compensate for the uncertainty and there are some intermediaries who have to get paid.
Thx for the response bsteiner. I'm not the OP, of course, but I was curious how much one could get.

Whole Life was the dumbest financial move I ever made (so far). I'm reminded of how dumb it was monthly. :oops:

The death benefit is roughly 224K with a net cash value of 103K with an annual premium of 2K. Was wondering if I could get more than the NCV by selling it to one of those agencies, but it does not sound like it since, as far as I know, I'm in decent health.

Would not be overjoyed paying the income tax and cap gains either.

Again was just wondering whether I should keep paying or dump it. I don't need the policy, but don't want to give away money either.
Another option to look into would be to convert the policy to fully paid so you eliminate the annual premium. The death benefit would go down, but at least you won't be paying more in.
Thanks. I'll take a look at this.

Based on other posters' info and my own suspicions the Life Settlement option would be a no-go for me.

Settling for the cash value isn't too appealing either since, minus the premium payments, it would be subject to state and fed tax.

I'm afraid the insurance company has its claws embedded in me. Fortunately it's not a significant financial issue. It's just the stupidity of having purchased it years ago in the first place.
Trade the news and you will lose.

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Stinky
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Re: Anyone done a "Life Settlement"

Post by Stinky » Tue Sep 10, 2019 9:24 am

ThereAreNoGurus wrote:
Mon Sep 09, 2019 11:35 pm

Based on other posters' info and my own suspicions the Life Settlement option would be a no-go for me.

Settling for the cash value isn't too appealing either since, minus the premium payments, it would be subject to state and fed tax.

I'm afraid the insurance company has its claws embedded in me. Fortunately it's not a significant financial issue. It's just the stupidity of having purchased it years ago in the first place.
Just because you made a mistake in buying a whole life policy a few years ago doesn't mean that you should perpetuate the mistake and keep the policy. Don't let a small tax bill stand in your way.

If you don't need the insurance, and want to earn returns on the cash value higher than what you're earning in the whole life policy - surrender the policy, invest the proceeds, and pay a little bit of taxes.
It's a GREAT day to be alive - Travis Tritt

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Re: Anyone done a "Life Settlement"

Post by barnaclebob » Tue Sep 10, 2019 9:42 am

Stinky wrote:
Sun Sep 08, 2019 5:28 am

bsteiner is correct. These settlement companies are not altruistic - they are in it for the money. They will receive the death benefit when you die, so they need to factor in your personal odds of death in determining how much to pay for your policy. The closer you are to death, the more they will pay (theoretically, at least). But never more than the face amount.

Kinda morbid, isn’t it ......
There was an american greed episode where someone was running a scam around this. I think they were actually paying the people who were insured but somehow trying to roll the purchased insurance plans into a security of some kind and then scamming the people who bought the security. They would target cancer patients I think. In reality its not necessarily a bad or unethical business if the spread isn't too high and predatory practices aren't used.

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Re: Anyone done a "Life Settlement"

Post by BruDude » Tue Sep 10, 2019 10:14 am

barnaclebob wrote:
Tue Sep 10, 2019 9:42 am
Stinky wrote:
Sun Sep 08, 2019 5:28 am

bsteiner is correct. These settlement companies are not altruistic - they are in it for the money. They will receive the death benefit when you die, so they need to factor in your personal odds of death in determining how much to pay for your policy. The closer you are to death, the more they will pay (theoretically, at least). But never more than the face amount.

Kinda morbid, isn’t it ......
There was an american greed episode where someone was running a scam around this. I think they were actually paying the people who were insured but somehow trying to roll the purchased insurance plans into a security of some kind and then scamming the people who bought the security. They would target cancer patients I think. In reality its not necessarily a bad or unethical business if the spread isn't too high and predatory practices aren't used.
A few years ago we had a client that was an executive for a large corporation that had provided him with a $20M term policy as a key executive, which he reduced to $2M upon his retirement, and they gave him the option to continue paying the premiums, which he did for a while. However, the term was ending a few years later, and he needed to get a new policy in the same amount for a business agreement on his own side project. He had some significant health issues, and was offered nearly $400k for his $2M policy (after it was converted to permanent coverage as required by the life settlement company), which he accepted. He then was able to purchase a new $2M policy and pay the premiums using that money, with plenty left over. If he had kept the full $20M, he would've been able to get nearly $4M from the settlement. It was a win win for everyone as long as the insured was ok with the whole situation on an ethical level.

There are situations where a life settlement can work, but it is extremely rare IMO, and even more so now that the tax laws have changed to make the death benefit taxable when a third party purchases the policy, and life expectancy evaluations came under a lot of scrutiny and were revised to become less favorable for the insured. Long story short, there was basically one guy doing the life expectancy evaluations for all of these settlement companies, and it was found that his evaluations were not very accurate. These issues combined have caused the offers made to insureds on workable cases to be much lower than they used to be.

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Stinky
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Re: Anyone done a "Life Settlement"

Post by Stinky » Tue Sep 10, 2019 10:16 am

barnaclebob wrote:
Tue Sep 10, 2019 9:42 am
In reality its not necessarily a bad or unethical business if the spread isn't too high and predatory practices aren't used.
Yes, in theory the life settlement business could be a good business for life insurance policyholders. If they are in impaired health, they could get a payout larger than their surrender value, which could be used while the policyholder is still alive. But, of course, smaller than the ultimate death benefit.

In practice, it’s a lot more difficult. There are middlemen (brokers, etc.) who want to be paid, and their compensation is usually not transparent. Also, the settlement company needs to be “conservative” (that is, low) in calculating the payout amount, because the “law of large numbers” that insurers use to price their products doesn’t apply in a one-off transaction like a life settlement.

If I was advising someone who was in ill health and wanted to sell a policy, I would advise them to get a number of bids from different brokers, and to see if they can leverage the “winner” into a higher payout.
It's a GREAT day to be alive - Travis Tritt

desiderium
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Re: Anyone done a "Life Settlement"

Post by desiderium » Tue Sep 10, 2019 1:14 pm

Stinky wrote:
Tue Sep 10, 2019 10:16 am
barnaclebob wrote:
Tue Sep 10, 2019 9:42 am
In reality its not necessarily a bad or unethical business if the spread isn't too high and predatory practices aren't used.
Yes, in theory the life settlement business could be a good business for life insurance policyholders. If they are in impaired health, they could get a payout larger than their surrender value, which could be used while the policyholder is still alive. But, of course, smaller than the ultimate death benefit.

In practice, it’s a lot more difficult. There are middlemen (brokers, etc.) who want to be paid, and their compensation is usually not transparent. Also, the settlement company needs to be “conservative” (that is, low) in calculating the payout amount, because the “law of large numbers” that insurers use to price their products doesn’t apply in a one-off transaction like a life settlement.

Good points. The market for life settlements is open and regulated in most states. Transparency rules may vary by state. There are experienced and scrupulous operators and of course a number of others. It is possible for an individual investor to purchase these, and there are brokers that troll individuals to sell them. However, I believe most of the money is in large pools of private equity/hedge funds that do use large portfolios to mitigate risk. The article linked earlier goes into this a bit. The settlement companies are supplying these to the market, like a mortgage originator might do. In addition to taking their fees, the "conservative" calculations come in part because of uncertainties in actuarial science and because investor expectations are somewhere above 10% return.

If I was advising someone who was in ill health and wanted to sell a policy, I would advise them to get a number of bids from different brokers, and to see if they can leverage the “winner” into a higher payout.

I would add also check your state's laws about protections, required disclosures etc.

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