Elder Care Solutions

Life Settlement is the term for selling a life insurance policy for more than its surrender value but less than its net death benefits to a third party for a one-time cash payment. The new owner assumes the obligation to make premium payments and becomes the policy beneficiary. This practice effectively created a secondary market for life insurance policies.

Clearly, for this unusual usage to become legal required some judicial attention, which it duly received beginning in the early 1900s. Its earliest use was in so-called viatical cases involving insured owners who were facing foreshortened life expectancies due to unanticipated life-threatening health issues. Even today, the maximum medically-expected life expectancies cannot usually exceed ten or twelve years without forfeiting much of the financial objectives sought.

For some people, the original need for the coverage has disappeared or become greatly reduced. Giving up the policy for the normally-low surrender value offered by the insurer is not attractive, but a life settlement may be. In the cases of interest to us, the reason for considering life settlement of a policy is an emerging risk of long-term care expenses. And this makes perfect sense – more cash for an asset no longer needed for its original purpose.

The argument could be made, and should be considered, that the costs might be paid from another source and then reimbursed from the death benefits of the policy. When this is viable, it should most definitely be considered. Otherwise, exploring life settlement for any policies with greater face values than, say, 30-50 thousand dollars may be very helpful. Bear in mind that a lively part of that calculation is the necessity for continued payment of the premium, or an inadvertent cancellation of the policy, followed by the total loss of the asset.