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Virtues and Evils of Life Settlement

Under the right conditions, sale of a life interest may be a good policy.

June 2008
by Alan Breus/Journal of Accountancy

Life settlement, boosted by aggressive marketing, has developed into a major secondary market for existing life insurance policies. The rise of this now $15 billion annual market has brought with it fresh regulatory scrutiny to crack down on the parallel growth of stranger-originated life insurance (STOLI). Given the growing importance of this segment of the life insurance business, CPAs should understand how and when life settlement can be a good investment for clients as well as the possible tax implications and hazards.

Individual life insurance protection totaled $10.056 trillion at the end of 2006, according to the Life Insurers Fact Book 2007, published by the American Council of Life Insurers. This vast pool of in-force policies underscores the potential importance of life settlement. Furthermore, through lapse, more than 70 percent of existing life insurance policies are destined not to survive to pay a death benefit (see Life Insurance: What's It Worth? (And Who Says?), Journal of Accountancy, January 2008).

This has been excerpted from Journal of Accountancy. View full article here.