·The owner has borrowed too much of the cash value of the policy for it to be self-sustaining. This usually happens with retirees who have ended up using the policy as a source of retirement funds, or who have had some unexpected event occur that required them to draw down the cash value of the policy.

·If the investment performance of a variable policy was very bad in the early years, the policy will not perform as predicted. Those who bought variable policies from 1999 through 2001 can probably relate to this.

·Too many unscrupulous life insurance agents have put their clients into policies that, in retrospect, were doomed from the start considering the clients’ situation and cash needs.

·Another type of “failure” is that for whatever reason, the life insurance is no longer needed. The intended beneficiary may have died or been disinherited, or for estate tax planning reasons it no longer makes sense for the policy to pay out as planned, such as that the estate no longer needs insurance for liquidity.

·A company’s key executive could retire, thus ending the company’s need to maintain insurance on his life. A business could fail, be dissolved, or go public, thus eliminating the need for Buy-Sell Arrangement backed with insurance.

·An individual policy is being replaced with survivorship insurance.

·A better insurance or financial product for particular circumstances has become available, but for whatever reason the existing policy cannot efficiently be “rolled” into it.

·The policy is no longer affordable, or the owners need relief from the monthly premium expenses.

·The owners need cash now, such as for a medical emergency or to assist a child or grandchild, or they need cash to supplement their retirement income. Also, the owners want a higher cash payout than the cash surrender value.

A life settlement is a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.

Life settlements are an important development in that they have opened a secondary market for life insurance in which policy owners can access fair market value for their policies, rather than accepting the lower cash surrender value from the issuing life insurance company.

Steps in a Transaction

1. Policyowner consults with an advisor, decides to sell his or her policy.
2. Policy owner and advisor decide whether to work with broker or to go directly to providers.
3. Client & advisor submit policy for valuation. Client releases medical information.
4. If policy meets criteria for a life settlement, providers send offers directly or through a broker.
5. Client and advisor review offers and client accepts his preferred offer.
6. Client and advisor complete the provider's closing package, and return essential documents.
7. Provider places cash payment in escrow and submits change of ownership forms to the insurance carrier.
8. Paperwork is verified and funds are transferred to the policy seller.