Thursday, 21 December 2006
More Seniors Selling Their Life Insurance Policies
Enterprising seniors have found a way to make money in their final years: selling their life insurance policies to investors.
For seniors, it means cash upfront, giving them more money to enjoy. For the investors, it means a guaranteed payout, with the likelihood of a profit.
For the insurance industry, it could mean trouble.
In the past, many people canceled their life insurance policies after retirement. With their children grown up and enough money saved to cover their final expenses, there was little reason to keep paying insurance premiums. That meant insurance companies collected much more money than they paid out.
But when an investor buys a policy, they keep it in effect — so the insurance company will have to pay the death benefit. The investors take over the premium, essentially betting that the person who originally took out the policy will die in the near future. As long as that person doesn’t live an extra 20 years, the investors stand to make a large profit.
If too many life insurance policies end in payouts, the insurance industry could end up raising rates. This could price out many lower- and middle-income people, leaving them unable to purchase this essential tool for safeguarding their family’s future.
“If payouts increase, the cost of insuring people is effectively going up and that will definitely increase the price of policies,” said J. David Cummins, Professor of Insurance and Risk Management at the Wharton School of the University of Pennsylvania.
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