Life settlement deals are increasingly popular, not always wise. Actually sounded pretty morbid to me the first time I heard about them.
The idea of selling your whole life insurance for a nice chunk of cash can sound appealing. Here’s how it works.
* A broker will offer you a settlement worth a certain fraction of your policy’s face value, which is generally more than the cash value amount.
* The broker then sells your policy to a buyer who will pay the premiums on the policy. When you die, the policy buyer gets the face amount.
One example given by Smart Money: A 75-year-old man with $1 million in life insurance might get $250,000 now from a life settlement. The investors would get $1 million when he dies.
* For some people, the life settlement is a great choice. If they are struggling to make their insurance payments, if their beneficiary or spouse has died, or if they really need the money, it can be a good move.
The life settlement business is growing rapidly. It rose from $2 billion in 2002 to an estimated $18-19 billion through June 2009, according to The Economist. Of life settlements made in 2008, more than half of the policies were less then four years old.
* The business is not regulated by the federal government or most state governments. Life settlement companies don’t have to disclose how they value policies, what fees they charge or what commissions they pay.
Caution: After a life settlement, you may owe capital gains taxes on the proceeds, and you might not be able to get more life insurance if you need
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