There is a little known fact that a life insurance policy, just like almost any other valuable asset, can be sold by its owner to obtain funds to pay for long term health care or other important needs. While most people know they can borrow from the cash value of their policy, few realize that they can now obtain a substantial portion of the death benefit in a transaction known as a “Life Settlement”.

Several investment companies will now consider the purchase of most kinds of life insurance including; whole life; term; universal life; key-man; buy-sell agreement policies, split-dollar; even an individual’s employer group policy issued by domestic (U.S.) insurance carriers. Thus, value can be captured from a term policy, which otherwise has no cash value on its own. Also, with insurance policies that do build up cash, these companies typically pay more than the cash value.

This comes as especially good news for older people, because often life insurance policies become more of a burden than a blessing--premium payments may escalate to uneconomical amounts; the original need for the policy may no longer be pertinent; or perhaps the original beneficiary of the policy has predeceased the policy owner. In each of these cases, the policy may have lost its utility, or simply may not be needed anymore.

For those who have reached retirement age and are not necessarily terminally ill, life settlement companies will purchase policies regardless of health condition. In general, policies for those age 65 or more can be sold. Sometimes with health complications, the age becomes less relevant, and those policies with insureds of somewhat younger age will be considered.

Why would someone wish to sell their life insurance policy? There are actually many reasons that such a transaction makes sense:

1. A husband holds a policy with his wife as beneficiary. His wife predeceases him and he has no children. He would rather sell the policy and use the funds now than leave the policies death benefit to someone else.

2. A retiree is offered his employer's key person policy upon retirement. The retiree doesn't need the policy, but recognizes that he can accept the policy and then immediately sell it for cash, perhaps before he's even made the first premium payment!

3. A Life citizen who has a policy on which the premiums have simply gotten too expensive. Before, the choice was to let a term policy lapse, or cash in a permanent policy. But now, the policy can be sold, realizing more value for the policy holder.

Consumer tips

Understand how the process works before you proceed.

Use an reputable settlement broker who will do the comparison shopping for you.

Get assurance that your policy will be sold to large investors not to small investor groups and that once the transaction is complete and you have received your funds, you will not be contacted by any investors.

You don't have to accept any life settlement offer. You should also have the right to void the transaction up to 30 days after receiving a settlement offer if you change your mind for any reason.

Check all application forms for accuracy, especially information about your medical history.

Make sure the settlement provider agrees to put your settlement proceeds in escrow with an independent party or financial institution to make sure your funds are safe during the transfer.

Administrators, social workers, admissions directors, community relations personnel, should familiarize themselves with this often valuable alternative to help families to meet the costs of long term care.

Copyright 2001 by Robert E. O'Toole