Life settlements are really interesting, and a lot of people don't even know they exist. A life settlement is when someone invests in the life insurance policy of an older person. Just what does that mean? Keep reading, you'll find the answer soon.
There are many people who have life insurance. In fact, when they are young and healthy, a lot of people buy big life insurance policies. The main reason they buy a big policy is to leave something to their spouse, children, or other family members. But the person's health may get worse over time. Treatments for a heart attack, stroke, or cancer can be expensive.
The cash value of the life insurance policy then becomes an asset for the person who owns it. Once the cash value is gone, though, the life insurance policy is just another cost. To pay the premiums, you might need a home equity loan or another loan.
Most older people don't want to put money into their life insurance that they don't have. The result is that the policy ends or the person can keep paying the premiums. Since many policyholders can't pay the premiums anymore, it seems like their only choice is to let the policy expire. But you still have another choice. This is so that an investor can buy your policy and name that person as the beneficiary.
For example, your $1 million life insurance policy. You've spent all of the cash value, and now you have to pay premiums that you can't afford. An investor wants to buy your policy for $500,000. They want to be named the beneficiary. You think the offer is great because the policy has no value to you since you can't pay for it.
The insurance policy is also valuable to the investor, who will get the full $1 million when you die. The difference of $500,000 is what the investor gets back. The investor will have to pay taxes on the money he or she makes. Also, the time between when you buy the policy and when you die could cause the investor to pay more in premiums than they had planned.
Life settlements seem to be a good deal for both the investor and the person who owns the policy. They are, too. But the children or other family members who don't get the money from the life insurance policy are the ones who lose out.
If you are thinking about life settlements, you need to think about all the pros and cons. After you look at all the information, you can decide if life settlements are a good choice for you, either as an investor or as a policy holder.
