Life Settlements – A Powerful Retirement Tool

Written by Lingke Wang, Co-Founder of Ovid Corp. 

Life settlements are a powerful retirement tool many people don’t know about. It’s the sale of one’s life insurance policy to an investor – usually a large financial institution. Often times, seniors who have purchased life insurance before they were retired find themselves in situations where their policy is no longer serving their financial needs. In these types of situations, life settlements can be a great alternative to cancelling or surrendering the policy. Currently, over 80% of life insurance policies never result in a claim – meaning our dollars are just going towards the insurance companies’ profits.

Life settlements work like this: you receive an upfront cash payment in exchange for transferring ownership of your life insurance policy to a third party investor. The investor then continues to make the annual premium payments for the policy, and when the insured passes away, the investor collects the policy death benefit. The economics are similar to a life annuity – a common financial planning tool.

Life settlements were originally created in the 1980s to help seniors unlock the cash value of their life insurance. Every year, you pay premiums into a life insurance policy. But often times, circumstances will have changed since when you first purchased the policy – you may end up wishing that you no longer had this ongoing premium expense, or that you could get money out of the policy to pay for other expenses, like medical bills. This is where life settlements comes in – helping you monetize an asset that you didn’t know you had.

Learn more about how life settlements work.

When Should I Consider a Life Settlement?

Life settlements can meaningfully alter your household finances, but it isn’t for everyone. There are three general situations where you might consider a life settlement: (1) you can no longer afford your policy’s premiums (2) you need to free up cash – to finance a purchase or to pay for a large upcoming expense, or (3) you no longer need the life insurance coverage.

1. You can no longer afford your life insurance

In this scenario, most people would lapse their life insurance policy – stop paying the premiums and let the policy become void. Unfortunately, this option results in forfeiting all of the policy’s value and losing all of the previously paid premium payments. A life settlement can be a much better option in this scenario because it will help you recover some or all of the money that you’ve paid into the policy.

Premiums can be unaffordable for two reasons. Either your financial situation has changed and you can no longer afford premiums, or the premium cost has escalated as you’ve grown older – a common feature of universal life insurance policies.

2. You need to free up cash for another expenses

Need to pay for an upcoming medical expense? Want a new vacation home in Florida or to live abroad? Want to pay your grandson’s college tuition? Life is expensive – sometimes more expensive than we have anticipated. If you have an old life insurance policy, it could be used to fund something important to you.

3. Your life insurance coverage has outlived its use

Most of us purchase policies to protect our children in case of an unexpected passing. However, after many decades, many seniors find that their coverage is no longer necessary because their dependents are now financially independent. A life settlement can help turn this obsolete policy into cash value.

Life insurance can be complex – and there are often several options when you are presented with one of these life scenarios. If you have built up a large cash value in the policy, in addition to a life settlement, your other alternatives include borrowing against that cash value or surrendering the policy. Start by speaking with your financial advisor and/or your life insurance agent to be informed about all the options and features of your policy.

—————————————–

Ovid Corp. is the leading life settlement exchange, where consumers can sell their life insurance policies through our auction platform to institutional investors. For more information about Ovid please visit www.ovidlife.com or call 800-311-OVID.

Who will speak for the retired?

Before retiring I tried to make sure all my bases were covered. I had a good idea what it would take to finance the lifestyle my wife and I hoped to live. I did my due diligence to identify as many as possible of those interests, passions and hobbies that would keep me engaged and stimulated for the next few decades. My wife and I decided where we wanted to live while retired and made the move. And I did in-depth research to make the best choice to provide us with quality affordable healthcare (wishful thinking I know). This past month has been a rude awakening showing just how helpless we can be when it comes to basics such as medical coverage. Allow me to elaborate.

When my wife quit her job back in July she opted for COBRA coverage to extend for 15 months the medical, vision and dental plan we had been enrolled in while she worked. We figured we could research other options during that 15 month period but for now this made the most sense. She filled out all the required paperwork and began making monthly payments as directed. Easy peasie – everything should be fine for that time period, right? Not so fast.

About a month ago I noticed one of my prescriptions was not being refilled. I called the provider and was informed I was not covered. What? And so the saga began. My poor wife – bless her – began the long painful process of clearing up the mistake in “the system”. For weeks, multiple times a day, she talked with representatives from COBRA and the insurance company. Each time she made a call she had to start at the bottom of the call pyramid, explaining over and over who she was, her information and what the problem was. Often after explaining the situation she was put on hold and then suddenly rerouted back to the beginning or disconnected all together. Return calls never materialized – ever – whether promised by the initial contact or escalated to a supervisor. Sometimes the account showed we were covered, sometimes it said we were not. Our frustration was building. I could not have done it but my wife – bless her again – stuck with it.

Our salvation came from the fact this kind of thing was what she had done while employed. Luckily she had a contact for the broker who managed the health plan for her previous company. By getting her involved we were able to rise above the noise and get some attention. The broker made some calls and things started to happen. According to a call this morning everything should be fine now. We will see.

The sad thing is without an inside connection we might still be spinning our wheels while our blood pressures rise and resolution of the problem remains wishful thinking. What about all those who are on their own? You can be sure potential problems are not limited to healthcare. We have experienced challenges with regards to phone services, internet services, as well as electric and water services. It’s a jungle out there.

I believe companies and the people they employ generally want to do a good job. It may be naïve but that is the way I roll. However, it seems too often that service is subpar. The focus on profits has driven many companies to look for cheaper ways to do business. I get it but what is the real cost in terms of customer satisfaction? Automation reduces the need for people but also removes the personal touch. Those blasted call trees that you have to walk through – step by step – every time you make a call may save money but can try the patience of a saint. Outsourcing may be cheaper but when the person answering the phone cannot be understood what kind of service are we talking about? My biggest fear is things are only going to get worse.

And when things get bad and you feel you are getting nowhere, what can you do? How do you escalate a problem if you are just one of thousands of customers each relatively insignificant in the grand scheme of things? It is scary what the future may hold. I only hope my wonderful wife will stick with me and continue to make the bad things go away. In the meantime I remain cautiously optimistic and continue to work on my patience for all things frustrating. I am sure to get a lot of practice…