Life Settlement!
Life Settlement is an agreement you make with a company to sell your life insurance policy to them for a lump sum. You can decide this is necessary for a couple reason.
1) You can no longer make payments on the policy, and if you don't sell it will have to cancel it
2) You need money and have no other way to raise it.
What you do is sell your life insurance policy. The buyer will continue to make the premium payments on the policy, and will collect on it when you die. (Pretty sure their model doesn't include any mortality rate less than 100% over the long term)
Why is this bad for regular people?
Life insurance policies are priced by actuaries. Actuaries (statisticians/economists/financial analysts rolled into one) work out how much to charge for a life insurance policy based on a number of factors including age, race, sex, location, habits (smoking etc.), preexisting conditions (sicker people pay more) etc. They collect mortality data from all available sources and using it determine how cheaply they can price your policy (to make it competitive in the life insurance market) and still make decent money.
Another thing that they consider is how likely someone is to pay premiums for a period of time and then cancel the policy before they die.
Now that there is a Life Settlement industry, the acturial model will have to change to reflect fewer policies being cancelled before being collected on. This will result in higher insurance rates for all.
Ta-Da!
Life Settlement is an agreement you make with a company to sell your life insurance policy to them for a lump sum. You can decide this is necessary for a couple reason.
1) You can no longer make payments on the policy, and if you don't sell it will have to cancel it
2) You need money and have no other way to raise it.
What you do is sell your life insurance policy. The buyer will continue to make the premium payments on the policy, and will collect on it when you die. (Pretty sure their model doesn't include any mortality rate less than 100% over the long term)
Why is this bad for regular people?
Life insurance policies are priced by actuaries. Actuaries (statisticians/economists/financial analysts rolled into one) work out how much to charge for a life insurance policy based on a number of factors including age, race, sex, location, habits (smoking etc.), preexisting conditions (sicker people pay more) etc. They collect mortality data from all available sources and using it determine how cheaply they can price your policy (to make it competitive in the life insurance market) and still make decent money.
Another thing that they consider is how likely someone is to pay premiums for a period of time and then cancel the policy before they die.
Now that there is a Life Settlement industry, the acturial model will have to change to reflect fewer policies being cancelled before being collected on. This will result in higher insurance rates for all.
Ta-Da!
Last edited: