Life Settlements Aren’t Bad for Insurance Companies At All

(2 Minute Read)

For many, many years, insurance companies have adamantly opposed the life settlement market. They believe it’s bad for them—that the mere option to sell their policy does harm to their market, so they go to lengths to ensure that clients aren’t informed of the very viable life settlement option that makes so much sense when a policy is no longer wanted or needed.

In a great article from Robin Weinberger and Peter Katz, they outline that a lot of these strides that insurance companies go to in order to knock down the life settlement market are unfounded, and that the life settlement market doesn’t have a negative impact on life insurance companies.

They highlight the obvious “win” for policy owners: that they can gain a lump sum from a policy that otherwise would offer them little-to-no value. They also note that producers may still earn renewal commissions on the policy that would otherwise lapse and that they are still providing a valuable service to their clients, meaning further loyalty in the future.

But is this all at the cost of the life insurance company? Maybe not so much. The article estimates that the current life insurance market exists at $20 trillion dollars, while the life settlement market accounts for about $2 billion of face amount.

The article then delves into some of the seemingly negative associations life settlements may have in regard to insurance companies. Like that some believe life settlements are a tax dodge, even though policy owners are taxed on their gains and create tax revenue. Or that the “headline risk” of a third party profiting from the death of a policy owner seems like a negative image— but the idea that depriving someone who no longer needs a policy of the knowledge that they can sell their policy instead of letting it lapse looks far greedier than the former.

Finally, they point out that to someone without a policy, the fact that it may lapse and leave them with absolutely nothing may be enough dissuasion from purchasing the policy in the first place. However, given the life settlement option, a policy may become more appealing.

While the life settlement market exists, it doesn’t make sense to let a policy lapse or to surrender it for practically nothing. If you or one of your clients has a policy they no longer need, a life settlement may be an option to get worth from your policy. Complete our qualification calculator to see if it’s an option for you.

I would be happy to answer any questions you may have about this or any other life settlement topic. I can be reached at 888-849-0887 or llagrotte@lsa-llc.com.