If you have a life insurance policy that you don't need or want anymore, you might be thinking of selling it. You were probably attracted by an ad for "life settlements" or "senior settlements." That's cash money for a policy that you'd otherwise let go. But this is more than a purely financial decision, said life insurance expert Joseph Belth, editor of The Insurance Forum in Bloomington, Ind. You also should think about the personal implications before closing the sale.

First, a brief explanation of the life-settlement business. Many older Americans own life insurance policies that no longer serve a purpose.

Maybe you've owned term insurance all your life. You've now retired and have enough assets for your family. The term premiums are going to rise and you don't want to pay them.

Maybe you bought universal life insurance but didn't invest enough money in the policy. When these policies are short of cash, they eventually lapse.

Maybe your small company bought a "key man" policy on your life, to protect its interests if you died young. Now you're retiring and the insurance isn't needed.

In any of these situations, you may be able to sell your policy to an investor for cash upfront. The investor pays your future premiums and gets the insurance proceeds when you die.

These are called "life-settlement" deals. They're offered by the same companies that handle what's known as viatical settlements. You see their ads in senior publications, newspapers or on the Web. In a classic viatical transaction, the policy is sold by a person who is terminally ill. The patient receives some fraction of the policy's face value.

Investing in policies

Life-settlement transactions work the same way. You take a medical exam. A doctor evaluates your life expectancy. If your life expectancy is shorter than normal, you'll be offered some fraction of your policy's face value. The life-settlement company finds investors who want to buy it. They collect your policy's proceeds when you die.

You often see ads inviting healthy people to sell their policies.

That's misleading. To find an investment, your health has to be impaired. (Doug Head, who runs the Viatical and Life Settlement Association of America in Orlando, Fla., said that, by "healthy," the industry actually means "a little sick," or "won't live to full life expectancy.") For seniors who no longer need their policies, life settlements sound like a simple shot at easy money. You get paid for something that otherwise would have little or no value.

But here's one more thing to think about.

The life-settlement company will have access to your medical records, not just now but forever, Belth said. The company also has to be able to track you to see if you're still alive. You'll be called periodically. Maybe your children will be called.

If you don't die "on time," your investors may start losing money on you. They'll have to pay more premiums than they expected. Most investors are decent people who will leave you alone. But what if your policy gets caught in a money laundering scheme?

Even if you sold to a firm you trusted, it could resell your policy to someone else. You've completely lost control.

Life-settlement deals are often peddled to older people as a "safe" investment with a "guaranteed" return.

Longer life, lower value

Those are misleading claims. Belth doubts that any investor can make money unless the person who sells the policy has significant health problems.

When you buy an interest in a stranger's insurance policy, you have to pay all of the policy's future premiums, plus an upfront payment to the seller, plus the slice that the middlemen take off the top. The brokers alone generally get up to 12 percent.

You get an estimate of how long the seller has to live. If the seller dies "on time" or earlier, you'll make money. The earlier the death, the better you'll do.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington, D.C. 20071-9200.

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