Life Settlements better than Lapsing
Life settlements can theoretically work to reduce lapse rates, because the investors who buy the policy will always contribute just enough money to keep it paid up until it pays off. If all life insurance consumers learn about life settlements and sell their policies before they lapse, the lapse rates would go to zero and the life insurance agencies would be forced to increase rates. This would make life insurance less competitive against other investment methods, and probably lead to lower sales.
But if you think that any of this causes the life insurance companies to worry, you’re wrong. Life insurance companies know that any loss of sales due to larger premiums will probably be more than offset by the increased sales due to people who start buying life insurance policies as investments with the thought of later selling the policies to fund retirements. Life insurance companies had always been somewhat embarrassed by lapse rates anyway, since they tended to indicate that policies had been improperly sold in the first place. Also, life insurance actuaries already assume and factor that a certain number of policyholder’s will have health declines, and thus will hold their policies until their death. From an actuary’s standpoint, the concept of life settlements in causing losses to the insurance companies isn’t nearly as onerous as the insurance agents try to paint it out to be when making a sale.
Finally, the life settlements markets are limited to a relatively small part of the market since they are only for people over 65 and who have had a dramatic health change. This group probably represents less than 0.5% of all life insurance policies, so life settlements probably are not going to impact life insurance profitability that much. It is, however, an argument that life insurance agents falsely use to try to portray the insurance companies as the big losers, and not the kids of those who are selling their policies.
Life Settlements are a great tool for seniors who were thinking about lapsing or surrendering their life insurance policy.
But if you think that any of this causes the life insurance companies to worry, you’re wrong. Life insurance companies know that any loss of sales due to larger premiums will probably be more than offset by the increased sales due to people who start buying life insurance policies as investments with the thought of later selling the policies to fund retirements. Life insurance companies had always been somewhat embarrassed by lapse rates anyway, since they tended to indicate that policies had been improperly sold in the first place. Also, life insurance actuaries already assume and factor that a certain number of policyholder’s will have health declines, and thus will hold their policies until their death. From an actuary’s standpoint, the concept of life settlements in causing losses to the insurance companies isn’t nearly as onerous as the insurance agents try to paint it out to be when making a sale.
Finally, the life settlements markets are limited to a relatively small part of the market since they are only for people over 65 and who have had a dramatic health change. This group probably represents less than 0.5% of all life insurance policies, so life settlements probably are not going to impact life insurance profitability that much. It is, however, an argument that life insurance agents falsely use to try to portray the insurance companies as the big losers, and not the kids of those who are selling their policies.
Life Settlements are a great tool for seniors who were thinking about lapsing or surrendering their life insurance policy.
posted by Life Settlement Pro at 11:08 AM
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