It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
Dear Savvy Senior, What can you tell me about life settlements? I have a life insurance policy that I really don't need any longer and I've heard that selling it can produce a nice payout. -- Interested In Selling
Dear Interested, If you don't need your life insurance policy any longer, are having a difficult time keeping up with the premium payments or could just use the money, a life settlement is definitely an option worth considering.
How it works
A life settlement is the sale of an existing life insurance policy to a third party company for cash. Life settlements are typically best suited for people over age 65 who own a policy with a face value of $250,000 or more.
Historically, if an owner of a life insurance policy decided they no longer needed it, they would either let the policy lapse or turn it in for a meager cash surrender value. But now, with the life settlement option, you can actually sell your policy for two to three times more than the cash surrender value would be, but less than its net death benefit.
Once you sell it, however, the life settlement company then becomes the new owner of the policy, pays the future premiums and collects the death benefit when you die.
How much money you can expect to get with a life settlement will depend on your age, health and life expectancy, the type of insurance policy, the premium costs and the value of your policy. Most sellers generally get 20 to 30 percent of the death benefit.
If you're interested in a life settlement here are some things you should know:
Shop around: To ensure you get the best deal, get quotes from several brokers or life settlement providers. Also, find out what fees you'll be required to pay. To locate credible providers or brokers, the Life Insurance Settlement Association (LISA) provides a referral service at lisa.org.
Tax implications: Life settlements are also taxable if the cash surrender value of the policy exceeds the premiums paid on it. This can be very complicated, so be sure to consult a tax advisor. Also, be aware that receiving money from a life settlement can affect eligibility for public assistance programs like Medicaid or food stamps.
Be cautious: Life settlements are not regulated in every state, so be careful who you deal with. Make sure the broker or life settlement firm you choose is either licensed in your state or is a member of LISA.
If you don't like the idea of selling your life insurance policy but could use some extra cash, here are some other options your insurance agent can help you investigate:
Cash value withdraw: If you have any cash value in your policy, you can probably withdraw some of it to meet your immediate needs and keep your policy for your beneficiaries.
A loan: You may also be able to use your policy to secure a loan from the insurance company, as well as a bank, credit union or other lender.
Annuity "1035" conversion: Find out if you're able to convert the cash value of your policy into an immediate annuity, which will make regular payments to you for a set number of years or for the rest of your life.
Accelerated benefit: If you're terminally ill, some policies have an accelerated death benefit which pays some of the policy's death benefit before you die.
Reduced premiums: If premium payments are your problem, your life insurer may be able to convert your policy to a paid-up policy, or lower your death benefit amount in order to reduce your premiums. Or, consider asking your beneficiaries to help pay the premiums.
Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit www.SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of "The Savvy Senior" book.