I would never recommend a life settlement.......

Recently I received a phone call from an agent.  He said he had a client who wanted to sell her life insurance policy.  My first question was "How old is your client?".  He told me his client was in her late 50's.  I broke the bad news to him that unless the client had  serious medical issues she probably wouldn't qualify for a life settlement.  I explained that the market is generally looking for LE's (life expectancies) of around 10 years or less.  This took him by surprise.  He asked why any client would sell their life insurance policy if they only had 10 years or less to live.  He said he would never recommend that his clients sell their policy if they had less than 10 years to live. He would tell them to borrow the money.  Well it's not always easy to borrow the money to pay premiums.

I think this conversation elicits a discussion on a few of the reasons one sells their life insurance policy.

But before we go further I want to bring up an important point.  Life settlements don't make sense for everyone.  Every situation has to be examined on its own merits.  But its important that everyone is aware of life settlements.

The most common scenario I see when reviewing cases is an older person who has had their universal life insurance policy for many years , their cash value is dwindling down, and since they haven't paid their premium in a few years have recently received a notice that the carrier is requiring them to pay a higher premium to keep the policy in force.
Well there's a reason for this.   These people are usually in financial straits.  Typically they have limited resources and are on a fixed budget.  They either haven't planned well for retirement or are experiencing unexpected extra ordinary cost, such as nursing home care or a home health aid.
If you were a bank would you lend these people money to pay premiums?  Banks are not in the life settlement business and are not interested in tracking lives and premiums.

Another scenario which is not uncommon is business' selling their key man policy.  Sometimes the reason they are selling the policy is because they are having financial issues.  Again if you were a bank would you lend money to this business so they can maintain their life insurance policy.

Another common situation are people selling their term policies.  Typically they bought the term insurance because they had a insurance need for a limited time that they needed covered.  Now that the need is gone they typically don't want to maintain the policy.  Often times they don't have the resources to pay the conversion premium.  Is it better to let this policy lapse or to convert that policy into a lump sum of cash?

Well clearly you can see there are plenty of situations where a life settlement makes sense.  People cant always afford to continue their coverage, nor can they always borrow to pay those premiums, nor do they necessarily want the coverage.