Life settlements are gaining in popularity, but critics are taking a sledgehammer to these controversial life insurance products. Are they right – or should they be debunked? BankingMyWay studies the landscape and separates myth from fact.
First the facts. More than 6,000 Americans turn the age of 65 every day, according to The Alliance for Aging research. Couple that with the fact that 90% of all life insurance policies lapse or are surrendered annually, according to the Life Insurance Settlement Association (LISA), and you have a wide-open market for life settlements.
In a word, life settlements allow Americans aged 65-and-up to sell their life insurance policies to investors. In return, they get a handsome hunk of cash while they’re still alive to enjoy it. According to LISA, life settlement payments totaled more than $8 billion since 2005. The association also says that, on average, a life settlement brings more than $304,000 more than the average cash surrender value of life insurance policy.
Sounds a like a good deal. But are life settlements for real? Let’s separate the facts from the myths:
Myth: Life settlements are only for the rich.
Fact: Life settlements are legit for anyone with a life insurance policy worth at least $50,000.
Myth: Most life insurance policies pay out.
Fact: According to Golden Gate Financial (full disclosure: they do sell life settlements), 85% of all life insurance policies never pay a death benefit.