Life Insurance Made Simple

Viaticals” are similar to life settlements, but generally focus on insured’s whose physicians stipulate that the insured is terminally ill and will likely die within two years of the sale of the policy.  There are charities that have previously taken on life insurance policies from donors but now find the cash values nearly exhausted, may also be good candidates for life settlements.

Life settlement institutions are generally licensed by state Departments of Insurance. Investors participate in blind pools that acquire policies from individuals. Once acquired, the investment pool pays premiums for the remaining life of the policy’s insured. While life settlements appear not to be subject to federal or state securities laws, some states seek to provide additional layers of consumer protection.

A universal Life insurance policy purchased in 1994 whose funding premium was computed at the then prevailing interest crediting rate of 6.75% is not going to be conforming to its theoretical cash value curve. At some point the policy owner is going to be made aware of this dilemma and will face the choice of increasing his funding premium, complaining to the insurance carrier, or exchanging into a new policy that appears to solve the problem for approximately the amount of the old policy’s premium. It’s estimated that 30-40% or more of what the life insurance industry considers “new sales” each year in fact represents the replacement of old policies with new ones. And perhaps it’s understandable at a consumer consciousness level: as a corollary of the Walmart example, we are well accustomed to replacing virtually every consumable we own when it no longer works. That’s because in our experience it’s generally cheaper to buy a new one than fix the old one. We’ve also been convinced to replace perfectly good computers and other high tech gadgets when newer versions appear to have faster/better/niftier features. So if we discover that our life insurance isn’t “working,” we’re conditioned to the notion that perhaps we should replace it. Likewise, replacing the old one with the new one usually comes up.