Life Settlements: the next piggybank to be robbed

There are plenty of pitfalls to avoid when considering a life settlement, and dealing with a reputable life settlement agent is one key to maximizing your value and avoiding problems, understanding the proper circumstances where a life settlement is appropriate is the other. Life Settlements have the potential to become the next attention grabbing headline over the next ten years and the impact to those who settle can be either pro or con depending on their reason for settling.

Consider the following:

Most retirees are taking it in the financial shorts. Real Estate (primary residence and any vacation homes) may have declined 30% in value over the period 2006-2009. Stocks are bouncing around like a superball and many pundits suggest that we are in a bear market with additional downside risk. Social Security is seriously underfunded and government officials appear to have a Scarlett O’Hara mentality regarding our obligation to pay, “I’ll guess I’ll just worry about that tomorrow”.

For baby boomers looking for some liquidity Life Settlements may be an option. As the majority of them begin reach 65, they now become eligible to settle unwanted or un-needed life insurance policies. Life Settlements may become the new source of cash for people that “worry about that tomorrow”.

A life settlement is an arrangement where you receive secondary bids against the offered cash surrender value of your life insurance. You probably get three bids on any home improvement project; your life insurance policy should be no different. In many cases, policy holders can significantly increase the amount of money that is offered by dealing with a Life Settlement specialist. It is quite common for a $1M policy with a stated Cash Surrender Value of $100,000 to be settled for two or more times that amount.

Life Settlements became legal in 1911, where the government ruled that the a life insurance policy is an asset like any other, and may be sold or traded as such. Many folks just don’t know that they have the option to get secondary quotes or how to go about it.

There is no shortage of cautionary advice regarding life settlements, the industry is not federally regulated and most governance is state specific. To understand why Life Settlements are on the rise, you can read a trend analysis at lifesettlementtips.com. There are some very real dangers for not adhering to general guidelines for who should settle. The original intent was to offer an option to settle when circumstances had changed regarding the need for life insurance. Divorce, where you no longer want to pay a previous spouse a benefit, or possibly the death of the beneficiary are legitimate reasons for considering a settlement. Other situations include extra policies that you may have picked up over the years from employers. Due to the complexities and tax implications, it is generally advisable to work with your financial planner and a qualified life settlement broker who will provide you with complete disclosure of all quotes received and fees associated with a transaction. If done properly and for the right reasons, Life Settlements can be a very shrewd move in uncertain times, but as always, do your homework first.