You could say life settlements–the mechanism through which people sell their unneeded life insurance policies to third parties–present a good-news, bad-news scenario. It appears the good news is outweighing the bad. And that’s particularly good news for you.
But first, the bad news: Life settlements’ reputation has taken some hits from life insurers that have left some bruises. Christopher Kampa, director of research and project development at Insurance Studies Institute, a non-profit think tank on insurance-based risk management, says insurers see life settlements as a threat to their profits, so they’ve gone on the offensive.
“It’s easy for detractors to paint life settlements as a ghoulish investment, primarily because investors receive a death benefit when the insured dies,” Kampa says.
And he says insurers are working to align legitimate life settlements with stranger-originated life insurance (STOLI). While a life settlement is a legal sale of a life insurance policy, STOLI involves a third party who persuades someone to take out a life insurance policy just to sell it.
“The life settlement industry is strongly opposed to this type of transaction,” Kampa says.
Some good news
Despite the attacks, Kampa and other experts say there’s plenty of good news. Not only for policy holders and financial advisors but even for the insurance companies themselves.
Michael Leibowitz, president and CEO of Invescor, a life settlement brokerage services company in Farmington Hills, Mich., says life settlements could increase the sales of life insurance and that life settlements represent an additional option that adds flexibility to the life insurance sale.
Kampa adds that life settlements actually increase the value of life insurers’ products to seniors. “This value is derived from a senior’s option to sell their policy when it no longer fits their needs,” he says.
And at a fundamental level, Kampa believes life settlements are as legitimate as any other investments and that they share many of the same economics as pension funds, life insurers, annuity writers or long term care providers.