Do Life Settlements Work in ILITs?

(Related: 4 Clients Who Sold Their Life Insurance Policies)

Why would a trustee wish to sell the life insurance policy?  There are many reasons why this may be advantageous, but the reality is that the policy no longer serves its purpose and is no longer wanted or needed. Perhaps, there has been a decrease in estate value. Or, perhaps the policy itself is “blowing up” — meaning the cash in the policy has been exhausted because the interest has not been credited as high as illustrated decades ago. Or, the premiums are so high, the policy is no longer affordable. Perhaps a spouse has passed away.

The reality is hundreds of thousands of policies are lapsed each year because clients do not know a life settlement exists, or the benefits that a settlement can bring. Remember, life settlements have been legal since 1911 and are highly regulated by departments of insurance across the country, giving consumers the legal protections they deserve.

Life settlements are not for everyone — nor should they be. But, if you and your client have decided that lapsing or surrendering a policy is the best option for them, take a look at a life settlement. There may be more value for your client in a settlement. Studies show, on average, life settlements garner three to five times cash surrender value, and yes, even term policies can be sold.

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Lisa Rehburg is president of Rehburg Life Insurance Settlements, a life insurance settlements broker. She can be reached at (714) 349-7981.