Useful Insurance Information

A life settlement is only a good deal for those who have no beneficiaries or estate needs of any kind. If you take into account both family and charitable aspirations, this is a very small market. If an old man has heirs that he wants to benefit, or any other estate needs, then life settlements are not a suitable strategy. Instead, the old man should whatever he can to keep the policy going, just like the investors would do if they got it.

Some bad guys in the life settlement market cannot leave well alone. Because there simply are not enough seniors who are situated like the old man, i.e., have a large life insurance policy which they cannot afford to keep going, these bad guys look to basically "grow" future life settlements by arranging slick-sounding deals to encourage people who don't even have much life insurance yet to buy life insurance with the idea that later they will sell it. With these arrangements, known as SOLI, short for "Stranger-Owned Life Insurance", life insurance truly does become a pure investment with the policies grown like so many fields of corporate bonds awaiting future harvest.

SOLI is a hot topic product right now among many life insurance agents who cater to wealthy people, since they can be pitched that they can get a very high level of insurance for two years, thus allowing the policy to mature past the non-contestability period, and then also make a tidy profit up front just for engaging in the transaction. If they don't have the money on hand to buy the life insurance policy up front, that's still no problem as the investors will lend them the money, subject to taking the policy after the two years in repayment of the loan. This means basically Free Money for those who allow life insurance policies to be bought on their lives.

The problem is that this is precisely the sort of thing which can, and should, draw Congress' attention to allowing life insurance to grow tax-free. Why these life insurance policies are allowed a tax-free build-up is anybody's guess, since they really are a pure investment that have little to do with protecting the family from the insured's death. Indeed, because of insurable interest requirements for the initial issuance of the policy, most of the people who are approached to engage in this type of transaction already have a large enough estate that they don't need these policies to protect their families, and indeed are almost immediately cashing out of them. In these situations, the life insurance really is no different than a corporate bond, and there really is no sensible reason that they should be taxed much differently.