Life insurance plays a different role in retirement for many seniors than it does earlier in life. Although some people like to keep their insurance in place, some do find that policy payment becomes a burden or that they may be paying for coverage that they don't actually need. For some, senior life insurance settlements may be a way to make extra money for retirement years and to save on costs. What is a senior settlement and how does it work?
What are Senior Life Insurance Settlements?
Life settlements are deals that involve one party buying a life insurance policy from another party. A senior, for example, may have a plan that they no longer need or can no longer afford to continue. They may, alternatively, need extra cash in retirement. Selling their insurance to a third party may save on premium costs and raise a useful lump sum.
How do Senior Settlements Work?
These deals may be made by brokers, individual investors or specialist companies. The individual's life insurance policy is assessed, together with a range of other factors such as age, health and premium cost, and an offer may then be made to buy the coverage.
Most settlements are made as a cash sum purchase. This will not be for the face value of the policy but may represent a large enough sum to make this worthwhile. Once a deal is done, the senior gets cash and the policy becomes the property of the buyer. They continue payments and then take the payout when the original policy holder dies.
The payments made depend on a range of factors. Generally, those that are in poor health or that are older may be paid for more for their policy. Those with a life threatening or critical illness that shortens life expectancy may be offered a higher sum under a viatical settlement.
Why do Investors Buy Senior Life Insurance?
Although not reserved solely for seniors, many investors will target people at retirement age as they may be more willing to sell on insurance at this stage of life. Investors are looking for quick profits here and, to be brutally honest, may not have to wait that long for a policy payout as people get older.
The payouts made may help them turn a quick and high profit. Plus, most of the payment work may have been done by the original policy holder over the years so this may also represent a good return on investment.
Why Consider a Senior Life Settlement?
Some seniors need/want to keep life insurance policies in place when they retire. Others find that they no longer need coverage as is of no real value to them or to their families compared to an immediate payment.
In some cases a senior may make a life settlement because they need a cash injection to see them through a major expense or to help with general retirement expenses. Those that can no longer afford to pay their premiums may take a settlement and use some of the cash to buy cheaper coverage.
What are the Alternatives to Life Settlement Deals?
Some may talk to the insurance company that issues their policy to see if it has any cash surrender value. This may not, however, give as high a return as selling it on the open settlements market. Allowing a policy to lapse because payments are unaffordable or letting it expire may not be good alternatives as the insured party won't get any return at all.
Those considering a senior life settlements deal should take impartial advice before selling their coverage. It is also important to compare offers as payments made may vary. Further investigation may also be useful before reaching a decision. For example, it may be worth:
- Considering the pros and cons of senior life settlements.
- Assessing whether a viatical settlement may be an appropriate solution.
- Comparing potential payouts of cash surrender and settlement deals.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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