Life Settlements and Financial Planning for Senior Citizens

There is a new kid on the block for certain high net worth senior citizens. It is called the life settlement. It is a secondary market in life insurance policies. For years the insurance companies have operated what is called a monopsony. This is where a particular buyer so controls the market that he can also control prices. It is a reverse of monopoly where it is the seller who controls the market. In the case of insurance companies before the advent of life settlements, if a person was interested in cashing out his policy, he had only one buyer. It has been compared to a person who buys a house, and after years pass, and his circumstance change, he is able to sell the house only to the original builder, and at the price the builder paid to build the home. It is not likely this would be tolerated for very long.

This was the situation in life insurance settlements. In cases when a policy holder's life situation changed to such a degree that his policy was outdated, he could take the cash value offered by the insurance provider that sold him the policy, and at whatever terms the provider dictated. That was his only option. There are a lot of ways that a policy holder's life situation could change. Loans are repaid, some of his assets that contribute to his high net worth are sold off. Now, quite likely, he is over insured. The cash value of that policy could contribute to other investment opportunities more in line with his financial plan. It is now possible to basically sell the policy to the highest bidder, and take the cash settlement, called the life settlement, and reinvest it in a more appropriate policy. He is then free to utilize the remainder however he wishes.

The concept of life settlements began in Canada a few years back, and rapidly spread to the United States, and then on to most of the world. Now, most of the major insurance firms, and quite a few Financial Investment agencies have begun programs geared toward life settlements. It is a growing resource that provides another option to the senior citizen in his quest for financial security, and with the increasing number of seniors it is a growth field that will become more and more popular and well known in the coming years.

Source: Natalie Aranda writes on finance and insurance. In the case of insurance companies before the advent of life settlements, if a person was interested in cashing out his policy, he had only one buyer. It has been compared to a person who buys a house, and after years pass, and his circumstance change, he is able to sell the house only to the original builder, and at the price the builder paid to build the home. It is not likely this would be tolerated for very long. This was the situation in life insurance settlements. In cases when a policy holder's life situation changed to such a degree that his policy was outdated, he could take the cash value offered by the insurance provider that sold him the policy, and at whatever terms the provider dictated.