The Risks Of Life Insurance Settlements

Purchasing other peoples life insurance settlements is an opportunity to make a fairly safe investment, while helping someone else out.  When done ethically, life settlements are a win-win situation for both parties, the one who (unfortunately) lose out are the heirs of the deceased.  Many times, the upfront cash will be a huge relief for everyone and will allow the elderly to live their final days comfortably, without having to stress about where the money for their medical and final expenses is coming from. 

This hub will look at investing in others life insurance settlements.  To clarify, a life insurance policy is purchased from someone who is strapped for cash and will not be on this planet much longer.  Cash is paid upfront to the policy holder, and the investor is signed on as the beneficiary of the insurance and receives the full payout after death.  From an investors standpoint, it is a very safe investment but the payout time will vary depending on the time of death.  

Let's take a look at a few of the risks and downsides of life insurance settlements.

Image courtesy of d70focus via Flickr.
Image courtesy of d70focus via Flickr.

Waiting It Out

It probably seems morbid to bank your investment on how long it will take the policy holder to pass on, but it's inevitable.  One of the biggest difficulties is when the policy holder outlives your expectations.  With advances in medicine, and the extra sum of money that you paid them, they have many more options to extend their life.  Again, death is still inevitable but you'll have to wait much longer if their health improves.  

In the 80's buying life insurance policies from AIDS patients was a booming business.  They needed the cash for expensive treatments and life expectancy was very short.  Ironically, there were major medical breakthroughs that allowed AIDS patients to significantly extend their life and force the investor to wait for their return.  Be very selective with who you choose to invest your money into, because this could happen with almost any disease or illness.

What About The Heirs?

The family that would normally receive the life insurance payout is going to put up a fight.  Life settlements are a sticky situation in most families because they feel that the elderly are easily duped and being taken advantage of.  It's extremely important to be sensitive to the needs of the family during negotiations.  They will do their best to stonewall you, but ultimately the life insurance settlement decision is the responsibility of the policy holder.

The best situation you can find is when the entire family is strapped for cash and cannot afford the current medical expenses of the policy holder.  It's certainly possible to come off like an angel in this situation, and score a great deal on the policy.  These situations are rare because it's difficult to land a large life insurance policy without a large amount of assets.  Families will usually resort to selling the assets for quick cash before seeking out a life settlement.

Life Settlement Guide

Is It Ethical?

The argument of whether life insurance settlements are ethical is very common.  If you maintain honesty and tact throughout the entire process you can bet on death with a clear conscience.  Some families really need the money now rather than waiting it out (like you can do).    

If the ethics of this weigh heavily on you, be very careful about the family that you choose.  There are many situations where you will be seen as an angel, rather than the Reaper's messenger.  Using a brokerage company that has experience with life insurance settlements will ease the process and make sure that the negotiations stay tactful.

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