Selling Your Life Insurance Policy—Not a Good Idea
Over the last few years, the process of collecting some portion of the death benefit on your life insurance policy—known as a “life settlement” has become the rage, and has gotten much easier. It may seem like a “win-win” situation, as you get the cash now and the hedge funds, private equity funds, insurance companies and pension funds that are doing most of the purchasing simply have to wait until you die to turn a profit. Experts estimate the life settlement market has burgeoned from $2 billion a year to $35 billion in the last decade. You can even invest in the market as an individual—the investments are known as “death bonds.”
Here are some of the potential drawbacks to life settlement / death bonds:
- Potential loss of privacy — At least one former life settlements investor has acknowledged seeing the portfolio of life insurance policies held by a fund manager, which fully disclosed the names of all insured parties. Though there is no evidence to support that any malicious or illegal actions have been taken based on that knowledge, there is something unsettling about notifying potential investors that they will profit financially if you die.
- Financial risks — In addition to dramatically reducing the value to your loved ones—most life settlements are purchased for a small percentage of the death benefit (rarely more than 25%)—you may disqualify yourself for another insurance policy. Experts say that, if you simply want to stop paying premiums, check to see what the cash value of your policy is and see if you can use the cash value to pay the premiums.
Even for people interested in investing in death bonds, there are risks. These investments only pay off when death benefits are paid, so they can have little liquidity, and you can wait a long time for payment.
Contact Barnard, Mezzanotte, Pinnie, Seelaus & Kraft LLP
At Barnard, Mezzanotte, Pinnie, Seelaus & Kraft LLP, we have fought for the rights of individuals throughout Delaware County since 1980. We offer a free initial consultation. To schedule an appointment, call us at 610-565-4055 or 302-594-4535 or contact us online.
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