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A life settlement is a financial transaction in which a life
insurance policy owner possessing an unneeded or unwanted life insurance policy
sells the policy (at fair market value) to a third party for more than the cash
surrender value offered by the life insurance company. The purchaser becomes
the new beneficiary of the policy at maturation and is responsible for all
subsequent premium payments.
Generally speaking, life settlements are an option for
high-net-worth policy owners age 65 or older. Independent estimates report that
among this group, 20% of policies have a market value that exceeds the cash
value offered by the carrier. And while many policyowners are unfamiliar with
life settlements until a financial professional mentions the option to them,
the concept has gained attention from high-profile proponents such as Warren
Buffett, former U.S. Representative Bill Gradison, and numerous media sources
including The Wall Street Journal, Time Magazine, Business Week and The
Economist.
A growing number of experts now believe that informing clients about
offering life settlements should fall under the fiduciary duty of a financial
adviser. With this being said, those established in the industry are now
placing an emphasis on life settlement education for financial professionals so
that they can accurately present the life settlement option to all clients who
might benefit from it.
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