I want to thank you for not only stopping by, but for writing a thoughtful and respectful comment.

Here’s my response to your points..

1. A life insurance policy is an asset that the policy holder is (and should be allowed) to sell, but it doesn’t always make sense to do so. In the case where the senior is not likely to afford continued payments, then it’s probably the Insurance company that really loses out since they will end up paying the death benefit to the investors for a policy that would otherwise have lapsed. If there are beneficiaries in the mix, then you’re right they probably wouldn’t have seen the death benefit anyway if the senior could keep up the payments.

2. If the lapse rate for premiums is over 50%, then it is a loss for the carrier because they would end up paying the full death benefit for a policy that would otherwise have been canceled. It would be a definite win for the senior though.

3. True. That’s why it’s such a big win for the senior and a big selling point for the Life Settlement Company.

4. I have to disagree with your premise that it will take many years for rates to rise. Many insurance companies have already taken a hit due to the economic meltdown in 2008. And all companies pass rising costs on to the consumers, so I don’t think it will take much for insurers to increase rates to compensate for the risk that the policy will be sold and they will have to pay the benefit. Remember, premiums are essentially based on the likelihood that the insurer will have to pay the benefit. That’s why rates are higher for older individuals in the first place. An increase in policies being sold as life settlements increases the likelihood the insurer will have to pay the benefit.

5. Yes, that is very true. And that’s also one of the selling points of life settlements – it helps the current policy holder today, which is something the insurance wouldn’t otherwise be able to do.

6. I agree whole heartedly. And I have nothing against investors big and small making a profit, but there are other concerns involved such as the effect on insurance rates for others, and the effect on the family or beneficiaries of the policy holder. I was just trying to bring some of that to light.

7. I believe some serious regulation is going to have to be involved in how life settlements are offered, if only to limit fraudulent companies taking advantage of seniors. But I am by no means in favor of taking away a person’s right to sell their policy. I am only trying to outline the pros and cons.

Thanks again for adding to this debate!

You have a definite point about the kids having deeper financial problems if they’re plan is based on the parent’s life insurance policy!

1)A life insurance policy is an asset. It certainly benefits the senior since he needed the money for himself (think Madoff victims). You said in the article that the senior likely couldn’t afford to continue making the premium payments so the beneficiaries are NOT getting shortchanged since the senior was going to stop paying the premiums anyway

2)The lapse rate among seniors on paying their premiums is over 50%. This means that most elderlies stop making their payments so it’s a win-win for the carrier
3)Furthermore, the “surrender value” of the policy is miniscule compared to the value of the policy in the secondary market
4)As far as premium raising by the carriers, yes, that may occur someday, many years from now when the lapse rate
deteriorates. But this business is less than 2% of the carrier’s business so I doubt this will happen in the near future
5) I read where a lot of this business was done in the 80s when AIDs was an epidemic. This market help soothe the last years of the victims’ lives as they were able to afford to spend the last one or two years of their lives traveling and indulging in other favored activities
6)And it isn’t the Wall Street instittutions that necessarily benefit; it’s the investors; you and me. It’s a win-win situation.
7)Yes, it does need more regualtion to protect the investor. Like any good new product, there will always be people trying to ben the rules to make a profit. That will eventually get taken care of.

In 1911, the Supreme Court ruled that a Life Insurance policy was an asset that can be sold. Don’t try to take this privilege away from people who need it.

Personally, I don’t have a problem with life insurance settlements. It lets people enjoy the rest of their life instead of living cheaply and giving their heirs a windfall.

As far as driving insurance rates up, it would only do this if people with life insurance were planning on ending the policy at the precise moment it looks like it actually might benefit them. In the example you gave, his kids should offer to pay the policy if he doesn’t have the means to do so.