| Factors Influencing Life Settlement Value of a Life Insurance Policy |
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| Written by Kelly Ramirez |
| Wednesday, 21 April 2010 18:21 |
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Financial planners and retirees are starting to embrace life settlements as a tool to generate income for seniors. Determining the value of a life insurance policy before starting a life settlement is an important first step in selling one's life insurance. The value of a life insurance policy is affected by a numerous factors relating to the insured, policy and policy owner among other things.
Financial planners and retirees are starting to embrace life settlements as a tool to generate income for seniors. Determining the value of a life insurance policy before starting a life settlement is an important first step in selling one's life insurance. The value of a life insurance policy is affected by a numerous factors relating to the insured, policy and policy owner among other things. A significant component to establishing the life settlement value of a policy is the insured's life expectancy. This is probably the most important factor aside from the policy's face value itself in determining a life settlement value. The insured's age, health, medical conditions, family history and gender are all evaluated to determine a life expectancy by buyers and outside medical appraisers. A policy insuring someone with a short life expectancy is more valuable than one insuring someone with a longer life expectancy. The type of life insurance policy also plays into the valuation. While, non convertible term policies are not typically sold on the secondary market, Whole Life, Universal and convertible term policies are actively being purchased. Usually the Universal Life policies are the most sought after as they offer flexible payments and sometimes have accumulated cash value which can be used to pay premiums in the future. Policy owners are also a component to the valuation of a life settlement. If a policy owner has previously declared bankruptcy or been divorced, buyers may devalue a policy. Some potential buyers are concerned that a former spouse or creditor will attempt to claim the life insurance policy. In addition, the value of a policy can be affected by the state of residence of the policy seller. Depending upon the type of life settlement transactional environment a state's laws create, a policy can be given a premium or receive a discount by buyers. The life settlement market itself has an impact on the value of life insurance policies. The buyers of life insurance policies are typically large financial institutions such as retail banks, hedge funds and investment funds. When these institutions have capital to deploy the life settlement market becomes more competitive and policies carry a premium. However, the financial institutions don't have as much money to invest in policies, the life settlement market may see discounting of policies. Understanding the many things that go into valuing a life insurance policy as a life settlement, will help policy owners decide when to consider selling their policy. Recognizing the many factors that contribute to a life settlement offer may ultimately help policy sellers maximize their life settlement value. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn more about a life settlement. Stop by Kelly Ramirez's site where you can find out the value of your life insurance policy with a life settlement appraisal. |