What are “life settlements”?
Irving, TX personal injury attorney James Craig Orr, Jr. explains the definition of life settlements.
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A life settlement is an investment, and how it works is if someone has a life insurance policy, say a million-dollar policy, and let’s say they find out they have cancer and they’re not gonna live very long. Well they may need money now for medical bills, or they may just wanna travel the world while they’re still alive, and they don’t wanna get the money after they’re dead from their life insurance policy. They wanna get it now. Well they can sell their life insurance policy to an investor, and that person who buys the policy then takes over the premiums and starts paying the premiums, and then when the insured passes away, the death benefit or the face value of the policy goes to the investor. So it’s a benefit to both sides. The person that owned the policy, the insured, they’re getting money now so they can enjoy it or pay for medical bills, but then the investor can also get a rate of return. The amount that the investor pays is an amount that’s less than the face value of the policy, and so then their profit is the difference between the amount they paid plus any premiums they have to pay and then the ultimate payout on the policy. And that’s what a life settlement is, and it’s a billion-dollar industry in the United States, and it’s – large, institutional investors invest in it. For example the teachers’ union and retirement fund out in the California is a big investor in life settlements. It’s a very interesting area.