Depending on where your news is coming from, life settlements are either the best thing since bread was first sliced or an investment option to be avoided.
As with most things in life, the truth settles somewhere in the middle.
Life settlements are a relatively new investment opportunity for individuals, which may explain why there is so much misinformation, contradictory information and flat-out fake news floating around the internet on the topic.
Here, for your reading pleasure and to help determine whether life settlement investments should be included in your portfolio, is a look at the facts:
Claim: Life settlement investments are unfair to seniors
This claim was made in a publication focused on finance news and business forecasting back in 2015. Sadly, it continues to show up in online searches for the topic of "life settlements."
And it's wrong.
Sure, the people who sell their whole life insurance don't receive the entire value of the policy – but at least they receive something.
According to the Life Insurance Settlement Association, more than $100 billion face value of life insurance lapses by seniors over the age of 65 every year. Some people forget about their policies. Others can no longer afford their policies. Then there are those who no longer need their policies and don't know that they could sell them.
When seniors sell their policies, they receive an amount that is always greater than the cash surrender value (but less than the death benefit) – and they are freed from the monthly premium payments.
So if you look at the facts surrounding the transaction, everyone actually wins. Sellers get paid when they might not otherwise do so, and buyers get a low-risk investment with a guaranteed payout.
Claim: Life settlements are the "Wild West" of investing
Some people have raised concerns about the the level of oversight the federal government has over life insurance settlements.
While this concern was certainly valid years ago, when the opportunity for individuals to purchase whole life insurance policies was relatively new, it's no longer valid.
It's a fact that 42 states (and the territory of Puerto Rico) closely regulate the selling and buying of whole life insurance policies – and the regulations cover approximately 90 percent of the country's population.
These regulations require people to wait anywhere from two to five years before selling their policies (although people who are terminally or chronically ill, divorcing, retiring, or dealing with a physical or mental disability can typically sell their policies sooner).
These regulations protect people from being pressured into selling, making bad decisions or taking action that they don't fully understand.
They also protect buyers, who want to ensure that they are adding high-quality, safe investments to their portfolios.
Claim: Only large financial institutions can buy life settlements
While it is true that accredited investors are the primary purchasers of unwanted or unused life insurance policies, it is also true that there are ways for individual investors to get into the game:
- Direct purchases, which requires a large amount of up-front cash along with the ability to make wise decisions about which policies to purchase.
- Direct fractional life settlements, which involves pooling your money with other investors to purchase a fraction of a policy or several policies.
- Equity funds, which allows you to purchase a portion of a fund that is comprised of hundreds of policies.
Are you ready to get the facts?
The internet is full of information about life settlements. If you are ready to get the facts – and find out if they are right for you – do some research, develop some questions, and then connect with us today.