Here is a hypothetical example of how a life settlement might work. John is a seventy-year old who owns a $350,000 life insurance policy. Like everyone else who purchases life insurance, John had a good reason for taking out his policy. In his case, he wanted to provide a source of cash to his business if he should die prematurely. This very popular type of life insurance is known as “key man insurance.”
But, look at what happened. John didn’t die prematurely. In fact, he retired and the business was taken over by his children. John now looks at his life insurance policy in a different light. He views it now as a financial burden that’s taking up money he’d rather be able to spend on enhancing his current lifestyle.
John could give the policy back to his insurance for its cash value of $35,000, or he could choose to pay no more premiums and let the policy keep going until it lapses. Or, he could do something else. He could seize upon an opportunity to sell his policy in the secondary marketplace. Well, that’s precisely what he did.
Exploring Options
The life insurance agent who originally sold John his policy explained that John could receive a no-cost appraisal of its value in the secondary marketplace. The agent also explained that the secondary market for life insurance policies was growing rapidly, and that more and more people were benefiting from being able to sell their policies for cash. Seeing no harm in learning about his options, John agreed to the free appraisal.
To start the appraisal process, John completed a simple form and signed an authorization allowing his medical records to be evaluated by potential purchasers of his policy. He also authorized the release of information regarding the status of his life insurance policy. These are critical pieces of information because the providers who might potentially purchase his life insurance policy must make an evaluation both of John’s life expectancy and of the ongoing cost of keeping John’s life insurance policy in-force.
Two factors: how much money the provider calculates will be required to keep the policy in-force, and for how long, both determine the amount of money the provider will offer seller. Importantly, having several providers make offers on the policy can result in a higher offer amount.
After about six weeks, John’s agent returned with the results of the appraisal. The agent explained that after reviewing his health status and after evaluating his policy, several potential providers made offers to purchase John’s policy for cash. The best offer received was $110,000.
John decided to sell the policy. Shortly after his sale closed, and he received a check for $110,000. It was a simple process, but powerfully significant. By looking beyond what he thought was his only viable option, taking the $35,000 cash value, John was able to gain an additional $75,000 he otherwise would not have received.
John gained so much because he was able to sell his life insurance policy in the same manner that he is able to sell his home or his stocks, or any other asset. The secondary marketplace for life insurance policies provided John an important option that he decided to take. Now, he has $110,000 to use to make his life more enjoyable.
JERRY CLAIBORNE has formed a new organization to serve the needs of the senior life settlement marketplace, Life Insurance Settlements, Inc.
550 W. Cypress Creed Road,  Suite 300,
Ft. Lauderdale, FL 33309
web site:
E mail: [email protected]
Phone: 866-326-5433    ext. 1009
Fax:  954-337-5712