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Should you sell your life insurance policy? (How to do the math).

Article Excerpt
Be your own beneficiary is the catchphrase heading a life-settlement firm's Web site.

Life-settlement refers to the purchase of "unneeded" life insurance policies. Among the many symbols that will express the 21st century human condition, "be your own beneficiary" may become the defining statement for aging baby boomers (myself included) who started our run with "do your own thing."

Social commentary aside, this article will examine whether life-settlements are likely to be of value to you.

Life-settlement firms claim their net return is 12% to 15%, and they are paying insurance salesmen and others willing to solicit such purchases 10% to 15% of the purchase price as a commission. Add to this the possible repeal of the estate tax making more policies available for purchase, and there may be more agents buying policies than selling them.

Life Settlement Profile. There are three necessary characteristics that an insured person needs to have for a life-settlement firm to consider purchasing their life insurance policy:

* They need to be over the age of 65;

* they need to have a life expectancy of between two and 13 years; and

* they need to have had a significant decline in health since the policy was purchased, so that the policy underwriting rating is considerably better than the insured's current health.

If you don't fit this profile, it is simply a waste of time to go through the analysis with any solicitor.

Life-settlement firms and proponents always refer to the sale of life insurance policies that are "no longer needed." However, "needed" is not a particularly useful definition; many individuals have life insurance they don't need but that they "want."

"Needed" life insurance fulfills a risk management function such as having others financially dependent on an insured, as would be the case with a primary family-income earner raising children....