OAKLAND, CA -- (Marketwire) -- 09/10/09 -- Many older Americans have begun to explore the possibility of selling their unneeded or unaffordable life insurance policies for cash as a way to combat economic pressure caused by the recession. In fact, life settlements provide an average of seven million dollars a day to seniors in need.(1)
As life settlement grows in popularity, new legislation and financial planning strategies have helped to make the practice even safer and more transparent for customers. Despite this, many myths remain. To help dispel some of these inaccuracies, Golden Gateway Financial, an online financial resource for seniors, shares the truth behind some of the most common life settlement myths.
"Life settlement is an important financial decision that involves a great deal of emotion," Eric Bachman, founder and CEO of Golden Gateway Financial. "It is also surrounded by many misconceptions, making it critical that people learn the truth so they can make more educated decisions about their policies and retirement."
Myth: Life settlement is only for the wealthy
Truth: Life settlement is widely available to anyone with a policy over $50,000, regardless of income. The product is quickly growing in popularity across a wide variety of population demographics. Moreover, the application process is simple, with no new medical exams required.
Myth: It is better to take the cash surrender value on a policy
Truth: On average, a life settlement can provide up to 300 percent of the cash surrender value of a policy(2). When you consider that 85 percent of all life insurance policies never pay a death benefit(3), it is obvious that most people aren't aware of this life settlement option or the potential size of the cash payout.
Myth: Only whole life policies are eligible for life settlement
Truth: Life settlement is available for a wide variety of policies. The most common policy types are universal life, convertible term, and whole life, but settlements are also possible for some of the more specialized types of life insurance such as survivorship and group insurance.
Myth: Policies are purchased and held by individual investors
Truth: Institutional investors such as international banks and pension funds purchase the majority of life insurance policies. These providers must first undergo substantial regulatory scrutiny in order to be licensed to purchase life settlements.
Myth: Life settlement is only for the terminally ill
Truth: Life settlements are generally available to anyone over 65 years of age with a universal, convertible term, or whole life insurance policy. It is designed so that policyholders can get the most cash out of their policy even when they can no longer maintain their premiums. A special type of settlement, called a viatical settlement, is available to the terminally ill, but the vast majority of settlements today are life settlements.
Myth: Life settlement is a highly unregulated industry
Truth: Thirty-four states currently have life settlement legislation; another six have legislation pending; and eleven have legislation that regulates settlements for the terminally ill. A recent New York Times article highlighted the fact that Wall Street firms are working to securitize life settlement as an investment opportunity. Securitization would enhance the product's appeal to a broader range of institutional investors.
For more information about life settlement or to access Golden Gateway Financial's industry leading suite of online retirement assessment tools and resources, please visit http://www.goldengateway.com.
About Golden Gateway Financial
Golden Gateway Financial (http://www.goldengateway.com), located in Oakland, California, is a comprehensive resource for senior citizens, baby boomers and soon-to-be retirees to assess their financial health at retirement. Through a unique set of online tools and clear and unbiased communication, the company helps individuals address "The Great American Retirement Dilemma." The tools enable users to better assess the security of their nest egg and to make intelligent choices to fully enjoy what should be the best years of their lives. The company also operates the industry's premier reverse mortgage and life settlement services with innovative new calculators and products for each, and a team of trained counselors to help seniors better understand the products and evaluate whether they are right for them.
(1) The Basics of Life Settlements, Life Insurance Settlement Association (LISA), 2008 (2) Data Collection Report 2006, Life Insurance Settlement Association (LISA) (3) Understanding Life Settlements and Industry Issues Entering 2008, Insurance Studies Institute, 2008