The survey, conducted by a US life settlement broker, found more than a third of its clients were previously unaware they could sell their life insurance policy to investors for a higher return than if they cashed it in with their insurer
A new study released by life settlement broker Welcome Funds found a significant degree of its senior clients would have let their life insurance policy lapse before they found out they could sell it through a broker.
In its survey of 200 clients, 38% said they were planning to lapse, cancel or surrender their policies before they were made aware they could sell it as a life settlement.
Another 29% claimed they chose the life settlement option because they were likely to let it lapse, cancel it or surrender it to their insurer in the future.
Welcome Funds founder and CEO John Welcom said the survey’s findings provided “clear evidence” of the need to raise awareness among America’s over-65s about the value of life settlement as an option for their death-benefit policy.
“Consumers who qualify for a life settlement obtain, on average, five to seven times more money by selling their life insurance policies to qualified investors than they do from surrendering them back to the insurance companies for their cash value,” he added.
“The life settlement option allows policy owners to use the proceeds from the sale of their policies to help pay for medical bills, living expenses or anything else they choose.”
What is life settlement?
Most life insurance policies will pay out an amount of money, which could either be fixed or based on the performance of an investment portfolio, when a policyholder dies.
Policies are generally taken out to ensure a spouse, children or other family member receive an amount of money, termed a death benefit, when a policyholder dies.
But this payment can be transferred to an investor, who buys the right to cash in the policy upon their death.
The amount the coverage is purchased for varies, but will likely be more than the surrender value and less than the expected death benefit.
Life settlement brokers, such as Welcome Funds act as intermediaries, connecting those looking to sell their life insurance policy for a short-term influx of cash and investors in the market to add policies to their portfolio.
Depending on the business model employed, intermediaries take a commission from either or both sides for brokering a deal between the two parties.