NEW YORK (MainStreet) Not long ago I took out my first life insurance policy. It was a morbid afternoon, not least because, from an actuarial standpoint, I am now worth considerably more dead than I am alive. However, it had to be done.
Life insurance is a rite of passage. It's growing up, admitting that people depend on you as an adult and that their world might go on without you. In my case, I'm getting married next year and need to make sure that my wife-to-be is provided for even if our next door neighbor's air conditioner comes loose from its window the next time I go to get a cup of coffee.
Pardon me while I knock on wood.
As I said, sooner or later it has to be done. We all grow up, and part of that means protecting the people who need you.
The thing is, sooner or later the reasons we need life insurance in the first place also tend to run out. After a certain point it gets steadily more useless as you grow older. Our children grow up, spouses make money and people just don't depend on you as much any more. Suddenly you're stuck with premiums for a payout that nobody needs, but that you've spent too much money on to just walk away from.
A life settlement is simply a buyout for existing life insurance policies. Like an old Chevrolet, you sell the policy to a settlement company and they pay a lump sum in return. The company assumes the premiums, and eventually collects the benefits upon your death. They pay based on the policy size, as well as, how much longer the settlement company expects you to live.