Should You Sell Your Life Insurance Policy to the Secondary Market?

These days, you can sell anything -- including your life insurance policy. The practice called "viatical settlements" became popular in the 1980''s when investors bought life insurance policies from terminally ill people who needed money for medicine. Since then, the market has grown into a multi-billion dollar business.

The name has changed from "viaticals" to "life settlements" but the concept is relatively the same however you don''t have to be terminally ill to sell your life insurance policy.  If you''re not familiar with the secondary life insurance market, here''s how it works. Say you''re a 65 year old with a $1 million permanent life insurance policy who no longer has a need for it. A life settlement company may offer you 10 to 25 percent of the policy''s face value. That''s anywhere from $100,000 plus (much more than you''d get by simply cashing in the policy). They would then own the policy and pay the premiums. When you die, the investor would get the death benefit of $1 million.  

Byron Udell from AccuQuote, a life insurance brokerage says, "These sophisticated investors realize that the return on investment is much better than they would get in the best hedge funds out there. Therefore, demand in the secondary life insurance market far exceeds the supply of available life insurance policies. As a result, these investors have dreamt up ways to create policies that can be sold in a few years."

In fact, these investors have turned to older people who can qualify for life insurance, but don''t really need it. If you fit this description, they might offer you two years of "free life insurance" through a non-recourse loan. This means if you don''t pay back the loan, the only recourse is the policy itself. At the end of the two years you have three options:

* Pay back the loan with interest and keep the policy
* Give the policy back to the lender (the investor may even offer an upfront cash amount for "selling" the policy back to them -- sometimes hundreds of thousands)
* Shop the secondary market to see if you can get more than what the lender has to offer (remember, you''ll have to pay back the loan plus interest with this money)

Sounds like a win-win situation: free life insurance plus the opportunity to make some fast cash, right? Wrong! Why? This could turn out to be a multi-million dollar incentive for murder!  

"I know it sounds far fetched, but think about all the murders that have taken place in history for money," says Udell. "You might say, ''Well these are sophisticated hedge funds.'' But there''s no regulation on these types of transactions. In a few years, when you''re still alive and the hedge funds'' margins of profit are getting slimmer they have every right to sell it without you knowing and it could end up in the hands of someone like a ''Tony Soprano''."

Udell suggests if the smartest investors are interested in these policies because of their return on investment, that it would make sense to keep your policy in order to pass this "inheritance" onto your family.

For more information on permanent or term life insurance policies visit AccuQuote.

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