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We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


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LIFE SETTLEMENTS: A SECONDARY MARKET FOR LIFE INSURANCE

Imagine for a moment there exists a world where several buyers stand ready and willing to purchase your car at substantially more than its trade-in value, and you get to choose the highest bid.  No advertising, no price negotiating, and no expense to you.  Science fiction?

Actually, such a world now exists for owners of life insurance policies that are no longer needed, no longer affordable, or no longer serve their original purpose.  The life settlement industry has created a secondary market for policies intended for lapse or surrender.

The life settlement industry was spawned by the viatical settlement industry, which created a secondary market for terminally ill policyholders who needed life insurance benefits prior to death to pay for the costs of care.

Policyholders who would qualify for life settlement are generally older than 65, have deteriorating health but are not terminally ill, and have realistic life expectancies of between 4 and 15 years.  Qualifying policies will have face amounts of between $100,000 and $5,000,000 and be beyond the contestability period (which is generally 2 years from the date the policy was taken out.)

The creation of a secondary market for life insurance could not be more timely.  Substantial declines in the equity markets coupled with near historic lows in short-term interest rates have devastated the portfolios and income of many seniors.  Because of this "double whammy", these seniors may not be able to afford the premiums on their current life insurance policies, and are forced to consider lapse or surrender of these policies.  A life settlement provides the senior with an alternative: sell the policy to a 3rd party in exchange for a lump sum payment in excess of the cash surrender value.

In 2002, life-settlement providers paid approximately $340 million to acquire policies with an aggregate cash surrender value of $94 million.  This represents an increase of 262%!  The market for senior-held life insurance is quite large.  It is estimated that seniors currently own $500 billion in life policies of which $100 billion would likely qualify for life settlement.

Secondary markets exist for virtually every financial asset.  Thankfully, that list now includes life insurance.

Jake King is a Regional Director in New England for Gateway Financial Distributors, a national organization that represents the leading, institutionally-funded life settlement companies.  If you have any questions about life settlements, please e-mail lifesettlements@mdtaxes.com .


LIFE SETTLEMENT QUALIFYING WORKSHEET

To find out if a policy is eligible for a life settlement, please answer these 10 questions, and someone will contact you via e-mail shortly.

Your name
City and State
e-mail address
Insured name
Age of insured
Sex of insured
Medical condition
Smoker
Face of Policy
Current Cash Surrender Value
Outstanding Loans
Current Premiums

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