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Life Settlements and Longevity Swaps

Trillions of dollars of unfunded (and under-funded) social security and pension liabilities, combined with the demographic time-bomb of aging populations, creates a daunting challenge in terms of covering the costs of retirees’ costs of living, care and healthcare – before even considering their desire to bequeath wealth (and lifetime gifts can be more tax efficient than bequests).

If Cash is King, a Life Settlement is His Crown

As millions of retired seniors witnessed the value of their retirement portfolios plummet amid the COVID-19 crisis, financial advisors were urging them not to take withdrawals that would lock in losses. This same reasoning was behind a provision in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which waived the required minimum distributions (RMDs) in 2020 for seniors age 72 or older.

A Brief Overview of Investing in Life Settlements

Americans are living longer, but their retirement funds are not. With greater financial instability comes a need for quick income, and many seniors are taking advantage of life settlements—the sale of a life insurance policy to a third party in exchange for a lump sum greater than the value of the surrender value but less than its death benefit.

Grim Risks of Reaping Death's Rewards

Death is inevitable, but good investment returns aren't—especially those that rest on how long people live. The increasingly popular practice of buying rights to older people's life insurance is risky, even downright perilous. People are living longer than actuarial tables say they should, and that is a problem, at least for the investor. Adding to the danger are a recent adverse tax ruling and some scam artists on the edges of the industry.

Life Settlements Provide Escape Hatch When You Need Cash

Perhaps you’ve seen the ads with older adults looking happy because they just sold their life insurance policy for cash. You might have scratched your head and wondered, “Is this for real? Can you actually sell a life insurance policy?” Yes, you can. Life insurance is a way to support your loved ones financially after you die, but what few people realize is that a life insurance policy also is considered property. That means it can be sold. You can do so through a transaction called a life settlement.

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