A life settlement is the sale of a life insurance policy to an institutional trust in exchange for cash.  Some may wonder why anybody would want to sell their insurance policy.  Generally we see four primary reasons a sale should be considered:

You’ve outgrown your need for the policy.

Most likely when you purchased your insurance, you were motivated by the desire to provide financial security for someone in the event of your death.  Today, because your savings are sufficient, or the family members you wanted to protect are grown and independent, you realize the protection is no longer needed.

New goals within your life’s plan.

One thing we know with certainty is that life is not static and it comes with opportunities as well as speed bumps.  A life settlement may be a way for you to increase your retirement assets or enable a loved one to receive an immediate benefit from the proceeds.

Your life insurance policy hasn’t performed as you expected.

Many of the policies sold over the past 30 years used non-guaranteed assumptions to project future policy values.  Economic conditions have surely caused insurers to reduce the earnings of the typical policy.  These same conditions may have an impact on your ability to meet the premium required to maintain the coverage on a go-forward basis.

Estate tax and business continuation plans have changed.

Life insurance is an integral component to most estate and business succession plans.  The current estate exemption of $5+ million places less emphasis on maintaining estate liquidity insurance.  Business owners and executives typically maintain insurance on their lives to protect the business.  When the business is sold or the executive leaves his/her employer, the ability to convert the insurance to cash becomes extremely valuable.