What to Consider

One reason you might want to review your life insurance policy — and consider changing policies, possibly through a life settlement — is that there might be a better policy option for you today. From 1981 to 2008, companies produced a dozen or more different versions of universal life, and each version is better than the last, said M. Bryan Freeman, former president of the Life Insurance Settlement Association and president of Habersham Funding, a national life settlement buyer.

“What most agents do when they replace an old insurance policy with a new policy is use a 1035 exchange to preserve the tax-free status of any gain,” Freeman said. But, he said, a life settlement can dramatically improve the value. “The amount you carry over into the new policy can be 1.5 to 4 times greater, depending on the face value,” he said.

Generally, someone who is 70 or older can be a good candidate for a life settlement, but Freeman said it’s really about your “medical” age — which includes your health — not just your actual age.

Scott Willkomm, chief executive officer of mortality-linked products for J.G. Wentworth, a life settlement provider, said the vast majority of life settlement candidates are in their mid-70s or older.

Also, many states allow insurance companies to contest a policy in the first two years, so most life settlement buyers would want you to have had the policy for at least two years.

“Just taking a policy out to flip it is a practice that at the minimum is frowned upon and viewed by some as illegal,” Willkomm said.

The traditional life settlement market has involved policies with a face value of $1.5 million or more. But there is a growing interest in smaller policies, Freeman said, noting policies with face values of $250,000 are also of interest to life settlement providers.

But life settlements are not for everyone.

“The best advice you could give to someone selling a policy is: If you can afford to keep it, generally, you should,” Willkomm said.

Freeman cautioned that before you sell your life insurance policy, if you still need coverage, you should make sure you can get it.

“If you couldn’t find anyone else to give you that coverage and you need it, you should not sell it,” Freeman said. Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6