When delving deeper into the market-driven research on the
myriads of reasons, motivations, and/or rationales for senior
life settlements – seniors selling their life insurance policies
have surfaced in recent years. According to studies by key
industry players, policyholder rationales for selling life
policies are to be identified on one of three levels, due to a
combination of them OR influencers from all three levels working
together to result in senior life settlement transactions:
Individual: cash-need for major expenses, outlived need for
coverage, needing different coverage or features, financial
distress
Family / Estate: Change in beneficiaries (e.g., divorce, death
of dependents), Second-to-die policyholder (i.e., spouse) has
passed away, material change in the value of estate
Business: Change in key executives / partners, change in
succession plan (e.g., family business) or needing cash /
seeking to monetize assets
(Source: Bernstein Research Call, Sanford C. Bernstein & Co.,
LLC, a subsidiary of Alliance Capital Management, 2005)
Other sources (Milestone Settlements, 2004) confirm that senior
life settlements appeal as solutions to individuals most likely
to consider a life settlement, because they, for one reason or
another, no longer need the insurance they purchased. A number
of reasons may include:
* Seniors whom have insurance and/or estate needs that have
changed, making their current policy(s) inadequate or
exceedingly adequate for their current or future needs
* Seniors who are not satisfied with the performance of the
insurance product(s) they have chosen, or are aware of
newer, better performing insurance products
* Seniors who choose to realize the value of their policy(s)
now, rather than continuing to pay on a policy they will
never receive the benefits of
* Individuals, or owners of a company, who own key man policies
that are no longer needed, or elect to use the sale of the
policy(s) to enhance a buy-out or create severance packages
* Seniors who wish to live out the remaining years of life
without a change in lifestyle
* Individuals who need capital to pay for medical treatments
or procedures
* Any senior who realizes that there is now a greater tangible
asset value to their life insurance policy, and wishes to
take advantage of this added value
A cautionary note seems appropriate here. Senior Life Settlements
is definitely not territory to approach without the advice and
assistance, counsel and due diligence of a well-versed,
experienced player in this secondary market. A financial advisor
with exposure and experience could advise you and assist you in
become aware of any tax liabilities you may face should you sell
your policy. Most times a life settlement is taxed on the income
above and beyond the basis (what you’ve paid into your policy
to date) of your policy. Each senior life settlement case is
different and if seems prudent to have a consultation with a tax
advisor or your financial planner prior to proceeding down the
path of Senior Life Settlements.
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