Apr
26
Life Settlements
April 26, 2008 | Comments Off
Shawn Cornett spammed me the other day with the idea of “Life Settlements“. You see, some Spam comments are actually great – and I thank Shawn for it (and for that, the double link back to his website). These comments give me topics to write on my blog. I like them.
Life Settlements are “financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash 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.” (Wikipedia)
I sincerely think they are a great idea if you end up at old age with a policy you should not have bought in the first place. (Do not buy Permanent Life Insurance) Dead people do not need money. The only people who may need money are the policy holder dependents. Once these people are not dependents any more (the kids grow up, the spouse starts receiving Social Security or have some networth of their own), there is no need for the money to be given by the Life Insurance Policy.
This is also the main reason why you should only buy Term Life Insurance for the years where your family is more exposed, while you save money (The Difference Between the Term premium and the premium for fancier insurance) for those years when your family will be less exposed and they will be better served by a regular inheritance of real money you have saved (asuming you want to leave them something).
Remember that no one gives you something for nothing. Life Settlements are giving you less money than your heirs would have received. Sure, you can enjoy the money now! But the purpose of the policy was not to enjoy money, it was to help those who may depend on you. If they do not depend on you, why did you held the policy for so long? Buy Term. Also, the so called Permanent Life Insurance are giving you some extra benefits, including the possibility of cash value and tax deffered appreciation – but again, someone is getting a hefty premium in exchange for this benefit – do not think they do this out of being nice.
Buy Term if You Must.
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