life insurance
With the slumping economy driving many older Americans into poverty, there is another asset besides the equity in your home that could be turned into cash - your life insurance policy.
I am not talking about buying a policy in order to flip it and sell it to an investor. That's called Stranger Owned Life Insurance (STOLI), which has been all but outlawed in most states because it's little more than a scam that aims to rip off insurance companies. And you put your life in the hands of a stranger-investor who profits if you don't live too long.
Now, however, reputable elder law attorneys and the AARP magazine suggest that if you have a universal or whole life policy for which you're still paying premiums, or which you and your heirs and survivors don't need, you may sell it as a "life settlement."
The proceeds of such a settlement, minus a broker's fee, would be less than the death benefit but more - maybe much more - than the cash surrender value.
The life settlement, which is especially useful for those facing costly medical bills, grew out of "viatical settlements" for terminally ill AIDS patients who did not have sufficient insurance. They paid for their care by selling their insurance policies. Those settlements ended as drugs prolonged the lives of HIV-positive patients.
While dying AIDS victims were able to get 30 percent or more of the value of the death benefit, according to the AARP magazine, most life settlements today pay between 15 percent and 25 percent on universal and whole life policies and on term policies that are convertible. Elderly people with health problems can get more.
Elder law attorney Penny Kassel of Garden City, N.J., says in her newsletter that most companies that buy such policies require that you own the policy for at least two years and that you allow them to see your medical records. If you're healthy, under 70 and have a long life expectancy, you're not a good candidate for a life settlement.
But you need not be ill to seek the cash of a life settlement. If you're over 70 and the policy is paid up, or if you've been paying on it for years, it is as much of an asset as your home.
Most people who can no longer afford the premiums let the policies lapse, which is what insurance companies count on. If you need the policy's worth in your lifetime and your heirs don't need the money, a life settlement could be a life saver.
Under a settlement, the buyer pays your premiums for the rest of your life and a percentage of the death benefit. And the older you are, the better the settlement.
According to one expert, a male policyholder who is 75 and has a $1.5 million policy with a cash surrender value of $72,000 can get a life settlement of $455,000.
Some brokers will pay life settlements for policies worth considerably less. You may shop around for the best deal. Brokers, many of whom now advertise, may earn high commissions. So AARP recommends you choose one through your accountant, lawyer or financial adviser.
Kassel says it may be possible to collect a portion of the death benefit if you are diagnosed with a terminal illness and need the money for care. This is called an accelerated death benefit, which is included in some, more expensive policies.
Wall Street has found a way to treat life settlements like the subprime mortgages that sent the financial system into a tizzy.
According to the Sept. 6 New York Times, some of the investment bankers who made millions from exotic "credit default swaps" and bundles of subprime mortgages are now "securitizing" life settlements. That is, they are planning to buy up thousands of life settlements and packaging them into bonds, to be sold to investors.
In 2006, New York State sued one life-settlement company, Coventry, for allegedly engaging in bidrigging to keep down prices offered in life settlements.
But there are potential problems beyond fraud, and the Securities and Exchange Commission announced last month the creation of a task force to investigate and consider regulating life settlements.
Times reporter Jenny Anderson wrote, "There is another risk for investors that some people could live far longer than expected. ... If too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet."
One wonders, for example, if investors with billions at stake could delay FDA approval of a cure.
With the slumping economy driving many older Americans into poverty, there is another asset besides the equity in your home that could be turned into cash - your life insurance policy.
I am not talking about buying a policy in order to flip it and sell it to an investor. That's called Stranger Owned Life Insurance (STOLI), which has been all but outlawed in most states because it's little more than a scam that aims to rip off insurance companies. And you put your life in the hands of a stranger-investor who profits if you don't live too long.
Now, however, reputable elder law attorneys and the AARP magazine suggest that if you have a universal or whole life policy for which you're still paying premiums, or which you and your heirs and survivors don't need, you may sell it as a "life settlement."
The proceeds of such a settlement, minus a broker's fee, would be less than the death benefit but more - maybe much more - than the cash surrender value.
The life settlement, which is especially useful for those facing costly medical bills, grew out of "viatical settlements" for terminally ill AIDS patients who did not have sufficient insurance. They paid for their care by selling their insurance policies. Those settlements ended as drugs prolonged the lives of HIV-positive patients.
While dying AIDS victims were able to get 30 percent or more of the value of the death benefit, according to the AARP magazine, most life settlements today pay between 15 percent and 25 percent on universal and whole life policies and on term policies that are convertible. Elderly people with health problems can get more.
Elder law attorney Penny Kassel of Garden City, N.J., says in her newsletter that most companies that buy such policies require that you own the policy for at least two years and that you allow them to see your medical records. If you're healthy, under 70 and have a long life expectancy, you're not a good candidate for a life settlement.
But you need not be ill to seek the cash of a life settlement. If you're over 70 and the policy is paid up, or if you've been paying on it for years, it is as much of an asset as your home.
Most people who can no longer afford the premiums let the policies lapse, which is what insurance companies count on. If you need the policy's worth in your lifetime and your heirs don't need the money, a life settlement could be a life saver.
Under a settlement, the buyer pays your premiums for the rest of your life and a percentage of the death benefit. And the older you are, the better the settlement.
According to one expert, a male policyholder who is 75 and has a $1.5 million policy with a cash surrender value of $72,000 can get a life settlement of $455,000.
Some brokers will pay life settlements for policies worth considerably less. You may shop around for the best deal. Brokers, many of whom now advertise, may earn high commissions. So AARP recommends you choose one through your accountant, lawyer or financial adviser.
Kassel says it may be possible to collect a portion of the death benefit if you are diagnosed with a terminal illness and need the money for care. This is called an accelerated death benefit, which is included in some, more expensive policies.
Wall Street has found a way to treat life settlements like the subprime mortgages that sent the financial system into a tizzy.
According to the Sept. 6 New York Times, some of the investment bankers who made millions from exotic "credit default swaps" and bundles of subprime mortgages are now "securitizing" life settlements. That is, they are planning to buy up thousands of life settlements and packaging them into bonds, to be sold to investors.
In 2006, New York State sued one life-settlement company, Coventry, for allegedly engaging in bidrigging to keep down prices offered in life settlements.
But there are potential problems beyond fraud, and the Securities and Exchange Commission announced last month the creation of a task force to investigate and consider regulating life settlements.
Times reporter Jenny Anderson wrote, "There is another risk for investors that some people could live far longer than expected. ... If too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet."
One wonders, for example, if investors with billions at stake could delay FDA approval of a cure.
