Interesting Term Life phone call

[Big_Hitter]

I looked at my policy and did some calcs.


It's basically a 20 year pay whole life policy so I've got 5 more years before dividends will cover the premium. Looks like they used 94GAR male and 4.5% interest to calculate the premium.

 

[Surewhitey]

I was just talking to a buddy who was in the financial biz. He said there's a type of biz who buys the policies and holds them as an investment...interesting concept.

 

[Big_Hitter]

I was just talking to a buddy who was in the financial biz. He said there's a type of biz who buys the policies and holds them as an investment...interesting concept.

it's called reinsurance

 

[brewer12345]

it's called reinsurance

Nope. Life settlements or viatical is what this is called.

 

[pb4uski]

Yes, its called life settlement (or viatical settlements way back when). These investors buy your policy, continue to pay the premiums and benefit when you die. Unlike conventional policies, the death benefit commonly is not tax-free since the investor doesn't have an insurable interest in your life.

I hate them and wish they would be outlawed. IMO you shouldn't be able to buy or own insurance on the life of someone unless you have a insurable interest in the insured's survival, like a spouse, child, or other family member or a business partner or estate.

There is a good description of them in this Kiplinger article:

If you need money and don’t need to preserve the death benefit, you may be able to sell your policy to an investor. These transactions, known as life settlements, have an unsavory past, but in recent years they’ve moved further into the financial mainstream.

Life-settlement companies buy life insurance policies for cash. They continue to pay the premiums, and they collect the death benefit when the insured individual dies. Life-settlement investors
image: http://images.intellitxt.com/ast/adTypes/icon1.png

are primarily interested in buying cash-value policies or term policies that can be converted to cash-value policies. The size of the settlement varies, depending on the size of the premiums and the policyholder’s life expectancy, says Bryan Freeman, founder of Habersham Funding, a life-settlement company. The settlement amount is typically 12% to 25% of the death benefit, although someone with a terminal illness and low premiums may receive up to 60% of the death benefit, says Freeman.

Here’s an example, based on a recent settlement by the Lifeline Program, one of the largest life-settlement companies. A 73-year-old man had a universal life policy he purchased in 2003. The policy had a $2 million death benefit and cost him nearly $40,000 in annual premiums. He sold the policy to Lifeline for $515,000 -- more than twice its cash value of $250,000.

If you’re in your fifties and feeling fine, this isn’t an option for you. Brokers are primarily interested in policyholders who are in their seventies, or younger if they have a serious illness, says Darwin Bayston, executive director of the Life Insurance Settlement Association.


Read more at Cash From Your Life Insurance-Kiplinger

 

[harley]

Yes, its called life settlement (or viatical settlements way back when). These investors buy your policy, continue to pay the premiums and benefit when you die. Unlike conventional policies, the death benefit commonly is not tax-free since the investor doesn't have an insurable interest in your life.

I hate them and wish they would be outlawed. IMO you shouldn't be able to buy or own insurance on the life of someone unless you have a insurable interest in the insured's survival, like a spouse, child, or other family member or a business partner or estate.

There is a good description of them in this Kiplinger article:

That's all I need. It's hard enough keeping DW from "accidentally" running over me with the car. Having a group if investors gunning for me would be a real PITA.

 

[athena53]

I ran this by an actuarial discussion board and one person agreed that it would be sleazy if they're only soliciting people with health issues. It may be, as Taxman says, that their books look better if ANY policy lapses and they can take down the reserve. (Reserves are dictated by formula and are based on average mortality statistics.)


I haven't carried any life insurance beyond what my employer provided for years; with the job I had through late 2012 it was 5X my salary and we had a lot of savings. It was only 2X salary for the place where I worked from then till a year ago but DH is 15 years older than I am, and the savings that I believe are sufficient for the 2 of us should be enough to keep DH in good shape. I'd already decided that I was going to drop employer-provided life insurance at the next Open Enrollment to save taxes on the imputed income, but quit before that could happen.

 

[Big_Hitter]

Nope. Life settlements or viatical is what this is called.

oops ur right - I always loved how an entity with no insurable interest whatsoever in a person could carry LI on them

 

[pb4uski]

oops ur right - I always loved how an entity with no insurable interest whatsoever in a person could carry LI on them

At least the death benefit is not tax-free in those circumstances.

 

[Walt34]

Yes, its called life settlement (or viatical settlements way back when). These investors buy your policy, continue to pay the premiums and benefit when you die. Unlike conventional policies, the death benefit commonly is not tax-free since the investor doesn't have an insurable interest in your life.

I hate them and wish they would be outlawed.

While I agree it smacks of vultureism (or something like that) I can envision scenarios where it benefits the policyholder.

A long while back some AIDS patients with life expectancies measured in single digits sold policies to pay for the treatments to keep them alive during that time, which they otherwise would not have been able to afford. Grisly, yes, but sometimes so is the gritty reality of the world we live in.

Or someone who bought a policy benefiting a spouse who is now deceased and the policyholder now comes down with a condition greatly reducing his/her life expectancy and they want the funds to tick off the remaining items on their bucket list.

There are legitimate reasons for them.

 

[athena53]

OK, here's an answer from a life actuary (not my area of expertise).

If this letter was received by someone in the US, the 30 year term they bought in 1999 was before reg XXX was effective. <snip>

I suspect the company is just simply trying to lighten the amount of people that have <10 years left on a 30 year term to 'reduce risk" or something. <snip>

I agree it seems suspicious.. Maybe they hit the MIB or some other Script data base with the SSn numbers of their policyowners and are sifting through and trying to get poor health people to terminate? Thats a verrrrrry dirty thing to do and if true I suspect MASSIVE fines to be paid that company in addition to restitution to all who accept.

I have to admit that's the most underhanded thing I've heard in a long, long time.

I would advise the letter writer to complain to their DOI.

DOI is Department of Insurance for your state.

 

[pb4uski]

....There are legitimate reasons for them.

Probably not so much anymore. The industry responded positively to those difficult situations by offering "living" or "accelerated" benefits on most polices at no additional cost.

Some insurers add accelerated benefits to life insurance policies for a small additional premium, usually computed as a percentage of the base premium. A growing number of companies, however, offer these benefits at no additional premium, but charge the policyholder for the option only if and when it is used. In most cases, the company will reduce the benefits advanced to the policyholder before death to compensate it for the interest it will lose on its early payout. In addition, there may also be a nominal service charge.

The situations vary, but they usually fall into one or more of these categories:

• Terminal illness, with death expected within a specified period, usually six months to one year.
• The occurrence of a specified catastrophic illness or the need for extraordinary medical intervention, such as an organ transplant, or the need for continuous life support.
• The need for long-term care due to an inability to perform a number of "activities of daily living," such as bathing, dressing, eating etc.
• Permanent nursing home confinement.

ALDOI - Questions and Answers on Accelerated Benefits

 

[Big_Hitter]

I wonder if I can get my death benefit early

 

[harley]

OK, here's an answer from a life actuary (not my area of expertise).
.
.
.
DOI is Department of Insurance for your state.

Wow! Great information. Thanks. Maybe I will notify them.

 

[imoldernu]

My dumb experience.

In the army 1959 a 30 payment life for $10K... checked the cash value around 1989, and it was about $3000. Left it where it was... No idea about anything to do with that value.. forgot about it 'til 2 years ago, and checked... Seems as if there was some kind of clause that renewed the policy, with premiums taken from the cash value. Nothing left.
Nothing ventured, nothing gained... still have no idea what happened. 10K doesn't sound like much today, but at the time, my 2nd Lt pay was exactly $220/mo. Four years salary as insurance for wife and child.

 

[Surewhitey]

it's called reinsurance

Reinsurance is when a company wants to "share the risk". They then take out a policy on the policy they sold that may limit their losses...If they write $1 million and only want to risk paying $200k, they'll buy another policy from the likes of AIG or Travelers for the $800k additional. If you die, they only pay $200k...

I was talking of a company (or individual) who buys policies from individuals, continue to pay for the policy vs. you, and profiting if they kick the bucket...

 

[pb4uski]

Surewhiety, I think Big_Hitter is an actuary so there is no need to explain what reinsurance is to him. But I suspect he is a pension actuary, and life/viatical settlements such as you described were new to him. Just an educated guess on my part.