Please don’t be embarrassed if you have to ask what is a secondary market life insurance loan. More than a few people, who are working in the insurance industry today, might also have a hard time answering that question. The secondary market for insurance consists of companies that do not sell life insurance, but rather, buy or loan money against an existing life insurance policy. While the secondary market for life insurance is quite new and just starting to blossom, its origins can be traced all the way back to a US Supreme Court decision dating back to 1911.
History of Life Insurance Loans
In the 1911 US Supreme Court case of Grigsby v. Russell, it was established that a life insurance policy was an asset like any other piece of property, and as such, the owner of the policy had the right to, among other things, borrow against the policy or sell the policy to another party. Depending upon the particular terms of your life insurance policy, you could receive an accelerated death benefit – money while you are alive. You could then use that money to help pay out of pocket medical expenses or for certain other financial needs.
Viatical Settlements Emerge
Fast forward to the 1980’s when the viatical settlement industry sprung up in the secondary market for insurance. A viatical settlement company is a third party that buys an existing life insurance policy from a chronically ill or terminally ill policy owner who has a life expectancy of no more than two years. In return for a cash payout and payment of all future premiums, the viatical company becomes the owner of the policy and collects the death benefit upon your passing.
Secondary Life Insurance Market is Established
Viatical settlements are subject to very restrictive rules, namely that you must be diagnosed as being chronically or terminally ill and have an expected lifespan of two years or less. With modern medical treatment, many patients, who were very ill, still could live well beyond the two-year threshold. Out of this type of situation it quickly became evident that patients, who were quite ill and elderly, often had a need to access money through their life insurance policy. That gave birth to the life settlement industry in the secondary market for insurance.
Secondary Market Life Insurance Loans
A secondary market life insurance loan lets you borrow money based on the death benefit of your policy. A key advantage is that you retain ownership of your policy and the lender is paid out of the death benefit after you die. Your lender also pays all of your premiums. You do not have to be terminally ill and you can have a life expectancy well beyond two years. Generally, you must have had a major slippage in health and be at least 65 years of age to qualify.
If you do not qualify for an accelerated death benefit from your life insurance company, applying for a life insurance loan in the secondary market for insurance is a great option to explore. While each life settlement company has their own policies and may be regulated by the state in which a client resides, the following are some common benchmarks needed to qualify for a life insurance loan through a provider in the secondary market.
- Age does not matter. If you are in your 40’s or 50’s and have a serious impairment that reduces your life expectancy to maybe 7 or 8 years, you can get a loan
- You must own a life insurance policy with a face value of $50,000 to $50,000,000
- You need to be beyond the contestability period (usually 2 years from the time the policy was purchased)
Whether you elect to apply for a loan in the secondary market, or may want to consider another option, the best way to make an intelligent choice is to have your policy valued.
Why not find out now?
There is no obligation or fee to see if you qualify. You have nothing to lose and plenty to gain.