Selling off life insurance policies to raise money grows in popularity; some wonder who’s buying
BY PHYLLIS FURMAN - DAILY NEWS BUSINESS WRITER
Someone out there wants to place a bet on when you’re going to die - and they’re willing to hand you a chunk of cash now, while you’re still alive.
This fast-growing business allows seniors to raise quick cash by selling their life insurance policies.
Years ago, seniors who didn’t need life insurance anymore or could no longer afford the premiums didn’t have many options. They could either let the policy lapse or collect the cash value, often a meager sum.
Now, a growing number of people older than 65 are entering into deals called life settlements where they sell off their life insurance to a third party for more than its cash value, but less than the death benefit.
“It’s an asset that seniors never realized they had,” said Doug Head, executive director of the Life Insurance Settlement Association.
There is a creepy catch: The sooner you die, the better it is for whomever bought your policy. That’s because the new holder can stop paying premiums and collect the death benefit.
As if that weren’t unsettling enough - for now there are no known cases of murder associated with life settlements, according to state insurance officials - consider that the buyer of your policy will know who you are and will have access to your medical records. The lower your life expectancy, the more the buyer will be willing to pay for your policy.
Morbid or not, life settlements - an outgrowth of the viatical business of the 1980s, in which the terminally ill cashed in their policies - are catching on fast.
An estimated $12.5 billion worth of the deals are expected this year, more than 12 times the 2001 figure, according to the Life Insurance Settlement Association. And it’s become a big business on Wall Street, where policies are bundled and sold to finance giants such as AIG, Wells Fargo and Goldman Sachs.
Seniors who sell their policies are using the cash to buy long-term care insurance, pay medical bills and buy more life insurance at a lower price. “It’s become a method to increase retirement assets,” said Jim Hiles, a certified financial planner at CBIZ Wealth Management in Manhattan.
Ernesto Knopfler, a 74-year-old from Borough Park, Brooklyn, who has six adult children and countless grandchildren, recently sold his $350,000 policy and pocketed $175,000.
“I decided I want to give to my children,” he explained.
Knopfler, the owner of men’s clothing wholesaler and retailer Kesser Clothing in Borough Park, bought his policy in 1985 and had been paying $3,600 in annual premiums. But they were about to escalate because of his age, said his broker, Al Weinberger of Triple A Settlements in Brooklyn.
To be sure, selling a life insurance policy doesn’t make sense for everybody. Anyone considering a life settlement should research it thoroughly.
“You have to understand that you are losing a valuable asset,” said Glenn Daily, a fee-only life insurance consultant on the Upper East Side who runs a Web site called Whatsmypolicyworth.com. “Once you do it, it’s irreversible.”
Before selling a life insurance policy, consider alternatives such as borrowing against the cash value of your policy.
Life settlements are not regulated in New York, leaving the door open for unscrupulous dealers. Brokers and agents do not have to disclose their commissions. Using an independent lawyer to review the details may be a smart choice.
Be aware that agents and brokers have a financial interest in your doing the deal.
Seniors will often hear about life settlements from their life insurance agents and use the money to buy another policy from the same agent. The agent gets paid a commission on both ends. Commissions can be very high, as much as 30% of what the buyer is paying for your policy.
Make sure you are getting the best possible price for your policy. Your broker should conduct an auction with multiple bidders.
Understand the tax implications of selling your policy. If you make a profit, you will have to pay taxes. If you keep your policy, in most cases the death benefits aren’t taxable.
Beware of anyone offering to lend you money so you can buy a policy with the understanding that they will buy it from you later on. Insurance law prohibits anyone from buying insurance on a stranger’s life.
“There are legitimate uses for life settlements,” said Jeff Angelo, chief examiner of the life bureau of the state Insurance Department. “But since it is unregulated, people should be very vigilant and know who they are dealing with.”
Call 1-888-973-8377 to see if you have a policy that will qualify for a life settlement.
