Structured
Settlements
You have probably heard the term “Structured
Settlements” on a TV ad and wondered what exactly it meant.
It's not one of those terms you hear every day...
A structured settlement
is a legal contract under which an insurance company decides
to make periodic payments to an injured person as part of a
bodily injury claim, or to a surviving family member to whom a large
settlement has been awarded... Finding a buyer
Definition
Senior Settlements
What are annuities
Tax Free Payments
Structured Settlement Companies
Structured Settlement Annuities
Selling Settlements
Sell Structured Settlements
Annuity for Cash
Selling for cash
Sell annuity payments
Settlment Payouts
Planning Life Settlement
Life Settlments
Life Settlments Articles
Immediate Annuities
Get cash for your Structured Settlment
Get cash for you annuity
Senior Life Settlments
How and When
Who to sell your payout
Selling Structured Payouts
Selling Monthly Settlements
Managing Structured Settlements
Fixed Annuity Options
Choosing buyers of structured settlements
Cash for annuity payments?
Buyers
Annuity Rates
Life Settlements
A life settlement is a transaction by which a senior citizen
who owns a life insurance policy sells it to a third party. This can
happen when the life insurance policy is deemed unwanted or unneeded by
its owner, or simply if the owner comes into circumstances where a lump
sum of money is required or is preferable to paying out the remaining
premiums.
The owner of the life insurance policy may find the premiums too expensive to keep up, or may require medical or long-term care, thus needing a large sum of money. He or she may wish to make a gifting to a charity or to family. His employment status may have changed, or even a situation as pressing as bankruptcy. There are also business purposes for selling a life insurance policy, such as key man, split-dollar or buy-and-sell agreements.
Entering into a life settlement
In any of these cases, the owner of the life insurance policy has the option of entering into a life settlement transaction, i.e. selling it to a third party, rather than surrendering it back to the life insurance company.
Aside from giving the seller of the life insurance policy a lump sum payment, the third-party company (known as a life settlement provider) also assumes responsibility for paying all the remaining premiums until the death of the seller. In return, the life settlement provider that has bought the life insurance policy effectively becomes its new beneficiary upon the maturity of the policy.
Life settlements are generally off the radar of most life
insurance or financial policy owners. They have yet to become a
mainstream financial product such as stocks or bonds. A survey
conducted by major industry firm Maple Life Financial in its 2005
Industry Outlook reports that almost half of all its respondents
(financial advisors) had at least one senior citizen client who had
entered into a life settlement, i.e. exchanged an insurance policy for
its cash surrender value.
What parties are involved in a life settlement?
First of all, there has to be a policy seller – a
senior citizen willing to sell his or her life insurance policy. Most
often, seniors are prompted to sell their policies when a change in
their health inflates their premiums. To enter into a life settlement,
the policy seller must hold a policy valued at $100,000 or above, and
must be a universal life, whole life or convertible life insurance
policy.
Policy sellers discuss and enter into life settlements with a financial
advisor, who may be an accountant (CPA), attorney, financial planner,
estate planner, certified senior adviser (CSA) or charitable trust
officer. Working with a broker in addition to the chosen financial
advisor is entirely optional. Brokers, however, may be able to get
policy sellers the best fair market value of their life insurance
policy, so they’re worth considering as well.
Finally, a life settlement provider is the party to whom the policy
seller turns over his life settlement policy. Life settlement providers
must pay the seller a cash amount that is greater than the
policy’s cash surrender value. Backed by institutional funds
from a major bank, many life settlement providers today also offer such
value-added services such as seminars on life settlements for sellers
and advisors alike.
How does a life settlement transaction take place?
The transaction is kicked off when a senior citizen discusses
his or her financial needs and situation with a financial advisor. Upon
the advisor’s assessment of the situation, he may present a
life settlement as a viable option. When the senior client decides to
sell his or her life insurance policy, the client and advisor may work
hand in hand to select a broker who works with various life settlement
providers. Or, the advisor may handle the transaction directly.
The details of the contract, or case, including the client’s
medical information are then sent by the broker or adviser to various
life settlement providers. Once the policy is approved by providers,
they then send their offers or bids to the broker or advisor, who in
turn forwards these bids to the client.
Upon the client’s acceptance of an offer, he and his advisor
then complete the provider’s closing package and turn over
necessary documents. The provider then places its cash payment in
escrow and submits change of ownership forms to the insurance company
that first sold the policy to the client. After some paperwork, the
client (or policy seller) will then be able to receive his funds from
the provider.