Life Settlement Industry Creates Secondary Market.
Imagine a world where buyers are ready and willing to purchase your vehicle at a price substantially more than its value at trade-in and you can choose the highest bidder. No marketing, no haggling, no expense to you. Fiction? Nope. Now this world exists,not for car owners, but for life insurance policyholders intended for lapse or surrender. These policy holders will receive a settlement while they are still living.
The life settlement industry has given birth to a securitized secondary market for acquiring life insurance policies from qualifying life policyholders, who receive an offer guaranteed to exceed the cash value of the policy. In 2002, life settlement providers paid about $340 million to acquire policies with an aggregate cash value of about $94 Million.
Life Insurance Policyholders who qualify for life insurance settlements are in general older than sixty five years of age; have deteriorating health, but are not considered terminally ill; and have “ascertainable and limited” life expectancies between two and fifteen years. Qualifying policies are at least two years old, pay death benefits between $100,000 and $5 million and are issued by an “A” rated insurance company.
AN EVOLVING INDUSTRY
Relatively new, the life insurance settlement industry evolved from “viatical” settlements, which catered to the needs of terminally ill life insurance holders. Viatical life settlements enable an insured to get benefits, prior to death, to pay for the high costs of care. Life insurance settlements, also known as senior settlements, don’t involve a terminal illness (less than 24-month life expectancy) but a determinable life expectancy based upon the insured’s lifestyle, age, and health.
The policy’s market value is the net present value of the benefit at death, factoring in the policy’s duration and carrying costs. some other factors affecting the fair market value include the type of life policy, the policy’s cash value and any loans against the policy.
A life settlement transaction creates a taxable event with two tiers. The first tier is the difference between the cost basis and cash value, most likely taxed as ordinary income. The second tier is the excess of settlement proceeds over the policy surrender value.
The IRS has not yet provided any specific guidance yet, however, whether this is considered to qualify as a long-term capital gain. The treatment of the tax implications of viatical settlement is markedly different. The Internal Revenue Service considers viatical settlements to be tax-exempt accelerated death benefits.
WHEN TO SELL OR BUY LIFE INSURANCE?
Life insurance settlements are a superb option when policy premiums are no longer affordable. Recent declines in short-term interest rates have hurt the cash flow of seniors relying on a fixed-income. With life settlements, the burden of premiums disappear and distressed policy holders receive cash up front.
Perhaps the senior citizen has outlived all beneficiaries and the payout of life insurance would create a undesirable taxable estate. Maybe the senior, due to health reasons, doesn’t qualify for long-term care insurance. Settlement funds could be used to fund long term health care.
From a entity perspective, life insurance settlements should be considered when a business is put up for sale or the owner is retiring. If your client is a non profit, or charity, it may be possible to consider selling donated life policies to realize cash today and eliminate future cash outflows
Why do individuals want to buy life insurance policies? Most life insurance settlement providers are backed by well-known financial institutions that view insurance policies as just one asset in a balanced investment portfolio. These financial conglomerates] rely on actuarial and other quantitative data to buy a profitable policy that will produce a expected rate of return at the policy maturity. These insurance policies are held in a blind trust that may be used as collateral for a bond offering in a process known as secondary market securitization.
FIDUCIARY PITFALLS
Life insurance products are acquired] for a host of reasons and should be a part of every estate and financial plan. As with any financial vehicle, these policies should be reviewed frequently. Usually they are not.
A good insurance policy at the time of purchase does not mean you have a good policy years later. In today’s low short term interest rate environment, many policies written in an environment when rates were substantially higher might require replacement?
Subscribe to the comments for this postCollection Agencies Making a Killing
CNBC reported this morning that the Collection company Portfolio Recovery Associates is reporting double digit revenue growth and its stock is soaring. Steven Fredrickson, the company’s CEO, tells CNBC how he plans to keep up the momentum.
The title of the Video is
The Growing Revenue of Collection Agencies
Debt Settlement Program Video
Why Bad Debt Must be Paid Off First
You may heard credit specialists on cable and financial websites teach about “ good debt ” and how it contrasts with bad debt. You are taught to pay off your bad debts first because they normally are tied to costly interest rates and are not balanced by something of value. It’s good to first understand the distinction between good and bad debt when you are looking into a debt reduction program.
All You Need to Know Concerning Good Debt
* What’s Good Debt? A good debt is any obligation that can actually increase your net worth. The rule follow is: if holding the debt could create a spike in your net worth, then it is thought of as a good debt. Good debt will develop a profit for you through an escalation in value or business sales. Perhaps, a good debt may additionally be a debt that causes a rise in your overall quality of life. Finally, a debt that’s tax deductible, which means that holding the debt decreases your tax bill every year, should without question be put in the category of a good debt.
* What are A Couple Examples of Good Debt? The most important example of a good debt would be a house loan. Assuming that it is backed by a property or portion of terrain that’s increasing in value, a mortgage loan creates an income through the equity that’s developed in the house. A further example of good debt would be a college loan, due to the fact that it is back by learning and should produce later income. A new business line of credit can additionally be thought of as a good debt if the business breaks a profit and results in an ongoing residual income.
Why Do People Refer To Certain Debt Bad Debt?
* What’s the Easiest Way to Decide If I am Dealing With Bad Debt? Simply put, if the credit account doesn’t produce additional worth for you and/or your bottomline, then it is bad. An auto loan is not a good loan due to the fact that vehicles go down in worth. The rule of thumb is that as soon as you take a new automobile off of the dealership you leave behind 20 percent in worth, and that decrease in worth carries on right up until the automobile is paid in full. The most widespread example of bad debt would be your credit card bills. Credit cards are the most damaging kind of bad debt for three major reasons: 1) it is not associated with objects of worth (except if you consider the sandals you got in 1998 something of worth!), 2) it commonly carries an expensive rate, and 3) it is a rotating account that could continue all through your life.
How Do I Get Rid of My Bad Debt?
You have a few options when you’re searching for a debt solution. Some the population decide on a bankruptcy lawyer, which may eliminate your debt but cause you to be denied by future banks, jobs, and other businesses for up to a decade. Some debtors settle on their own debt reduction plans, and many have learned about the advantages of plans proposed by debt settlement companies. Whatever approach you settle on, your bad debt should in every case be the first on your list because it it high in cost and in effect takes value from your bottomline.
Debt Settlement gets a bad rap
Debt Settlement Companies continue to be targeted as a problem industry, a scam, or a fraud. They are easy targets in these tumultuous times, and for good reason. Many of these “Debt Settlement Companies” “Sell” Their service without full disclosure about the risks involved and many of them don’t educate their clients about all of their options, including Debt Consolidation, Debt Management, Credit Counseling, and Bankruptcy.
The rise of the Debt Settlement industry is a result of other underlying issues including but not limited to, credit card companies, Lobbyist’s, bad Laws, lack of government regulation, and most importantly our CULTURE.
Clark Howard recently said “…when the bankruptcy laws changed in our nation. At that time, the giant banks that control the credit card portfolios stopped being cooperative with affiliates of the National Foundation for Credit Counseling (NFCC), which helps consumers manage and eliminate their debt. The banks were cynically trying to force people into a position where they had no choice other than to pay up. That environment created an opportunity for the debt-settlement firms to pop up with their false promises that they alone knew how to defeat the banks.”
We live in a capitalist economic system. The rise of Debt Settlement is directly related to the dire need for change in our Culture and specifically changes to the Credit Card Industry. Until Credit Card Companies are brought back into check the need for Consumer Debt Relief companies will always be there.
Debt Settlement
Debt settlement, also known as debt arbitration or debt negotiation, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.
As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance. However, when payments stop, balances continue to grow because of late fees and ongoing interest.
Consumers can arrange their own settlements by using advice found on web sites, hire a lawyer to act for them, or use debt settlement companies. Some settlement companies may charge a large fee up front; or take a monthly fee from customer bank accounts for their service, possibly reducing the incentive to settle with creditors quickly. One expert advises consumers to look for companies that charge only after a settlement is made, and charge about 20 percent of the amount by which the outstanding balance is reduced.
Debt Consolidation
Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Credit Counseling
Credit counseling (known in the United Kingdom as debt counseling) is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client. Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.
Source:
http://en.wikipedia.org/wiki/Debt_settlement
http://en.wikipedia.org/wiki/Debt_consolidation
http://en.wikipedia.org/wiki/Debt_counselling
http://edition.cnn.com/2009/LIVING/personal/06/04/clark.howard.debt.settlement/
Debt settlement services
IF YOU ARE STRUGGLING MAKING YOUR CREDIT CARD PAYMENTS?
ARE CREDITORS CALLING?
IF SO LOOK INTO ONLINE DEBT SETTLEMENT SERVICES
Debt settlement, also known as debt arbitration or debt negotiation, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.
As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance. However, when payments stop, balances continue to grow because of late fees and ongoing interest.
Consumers can arrange their own settlements by using advice found on web sites, hire a lawyer to act for them, or use debt settlement companies. Some settlement companies may charge a large fee up front; or take a monthly fee from customer bank accounts for their service, possibly reducing the incentive to settle with creditors quickly. One expert advises consumers to look for companies that charge only after a settlement is made, and charge about 20 percent of the amount by which the outstanding balance is reduced.[1]
Now look at that piece of plastic, tucked away innocently in the card section of your wallet. That small thin glossy Visa or Master card looks oh so innocent as it shines and glimmers in the sunlight, awaiting its next day of use!
But the creditor who assigned you this seemingly innocent card are not clueless. Matter of fact, they realize exactly what’s going on.
It’s not a fluke that as stated by the Federal Reserve’s 2006 survey nearly half of U.S. homes are bogged down with credit card bills and are now looking for debt help. Credit Issuers have made a multi-billion dollar industry from predicting the average consumer’s habits. Below are a few things that creditors realize that credit card consumers are usually unaware of:
- Probability for Problems in the Economy. Many credit card companies have complete departments focused on studying the economy and predicting possible economic issues that would cause credit card holders to use their credit cards more regularly. It’s not a coincidence that at a time when a lot of experts say that the U.S. economy is experiencing a downturn as a result of the swelling cost of oil, food, and other everyday needs, creditors are gaining more profits due to a rise in the everyday use of credit cards.
- Your Usage History Determines the Future. Another morsel of invaluable knowledge that credit card companies profit from is your past credit card habits. They keep a detailed history of your previous buying activities, amounts owed, and what you have decided on in specific circumstances that have come up in your credit card history. What you have done in previous situations is a useful forecaster of your potential deeds. For instance, perchance you initiated a new company and used your credit account to purchase $1,000 in business related supplies one time. Now your bank realizes that you are probably going to use your card for both personal and venture-centered purposes. In another example, if a credit card company knows that you have a weakness for high priced fashionable , they won’t only predict that you’ll purchase further high priced items in the coming months, but furthermore forward you rare offers with your bill for fashionable items from its advertiser partners.
- Card Users Do Not Always Scan the Small Print. Creditors also rely on the notion that many credit consumers are too lazy to read the fine print of their credit card arrangements and agreements. If a credit card user will only pay the lowest payment possible, not taking note of what the APR is, and not understanding how payments are distributed, they can find themselves stuck in a lengthy cycle where they will pay off credit cards for a lengthy period of time. In the meantime, the bank will continue to harvest the benefits of the consumer’s deficiency of facts for a long time into the future.
- 0% Balance Transfer Specials Lure You to Charge More, Thus Raise Your Balance. Years ago, credit issuers started mailing out varied 0% balance transfer specials to convince consumers at other companies to move their balances. While a significant amount of people took advantage of these low APR specials to save money and pay off credit cards, they may not have taken into account the fact that by helping to free up credit on their credit card accounts, these credit issuers were really creating somewhat of a trap. If a customer who is trying to pay off credit cards for whatever reason uses the new 0% balance transfer card account after a certain period of time (even if the 0% balance transfer rate is in effect for the life of the balance transferred), the interest rate on that new purchase balance can increase to 18% or more, and is paid last. This means that 12, 22, or 32 years down the line when the 0% balance is finally paid off, the amount you put on the credit account at 18% has been amassing interest for all of those decades as well. You could find yourself in the same boat as you were in originally!
- “Rewarding” You With an Increased Credit Maximum Gets You Deeper. Creditors usually ”thank” excellent debt holders who pay their monthly debt in full faithfully each month by increasing their spending maximums. But in truth, they know that when your maximum increases, you are likely to swipe the card on a more regular basis. At some stage in that course of action, you will reach a height where the creditor will quit increasing the credit threshold and is profiting from the increased interest costs on your credit card bills. It’s all about foreseeing the credit user’s activities.
Life Challenges Occur
The most important thing that credit card companies know way beforehand that we regular folk don’t predict is that life happens. Unexpected costs come up, cars need to get worked on, and medical and dental procedures have to be carried out. In many of these situations, customers have found themselves so far in economic problems that their instant response to unexpected expenses is to resort to credit. And so persists the sad story of American consumers who are trapped by high credit card debt and resourceful banks that rack up profits off of the despair and unawareness of customers.
If you have put yourself in a situation where you have been taken by all of these attempts to lock you into unsecured debt for life and have mounted up a substantial amount of credit balances due to life happening, it’s dire that you know that there is a silver lining, and yes there is an answer to your debt issues. Debt relief programs akin to the one you’ll stumble on at NetDebt.com have made many consumers break out of their bad dreams involving debt.
PLEASE DO YOUR DUE DILLIGENCE BEFORE YOU GET STARTED.
Debt Negotiation Companies
Also a type of debt settlement firm, they offer a consumer a different way to get out of debt. These companies work with consumers who have no cash to make settlement offers with the credit card companies. Debt Negotiation companies set up “trust” for you – though they are not always a licensed bank entity under the Federal Reserve. They collect a monthly fee to maintain the account, with the idea being that you are saving enough money to settle the accounts at a future date. A portion of the monthly payment towards the “savings account”, a part of the payment is taken as a fee for the debt negotiation company. Unlike consumer credit counseling services, they do not pay your creditors each month, they put money into your “trust”. Your creditors are not told of your “arrangements” with the debt negotiation company. A legitimate company will use an FDIC insured company for the trust account and give you access to it online 24 hours per day. They should also provide you with access to the negotiation correspondence with the credit companies.
The drop out rate of consumers from debt negotiation companies is high. The debt negotiation companies do not handle calls from the credit card companies, nor the collection agencies. Credit card accounts typically go into collection after they are charged off, typically 180 days after the last payment on the account. The length of the program is often 3-5 years, and many consumers cannot keep up the payments for this period of time. Often, consumers wind up being sued or even more deeply in debt with added interest and fees piling up. This can be avoided by using companies with good standings and practices that protect consumers from these procedures.
What are the Benefits of Debt Consolidation?
If you are in too much debt, remember that debt consolidation is an option. Financial dues and notices may be very stressful for you, especially if you have a lot of them. Dealing with credit collectors may be very strenuous especially if you do not have the money on hand to repay your debt. Well, it is good to explore debt consolidation as an option. But before actually getting a debt consolidation loan, it is important to know if it will be beneficial for you.
When you consolidate your debt, this means that you get a single loan to repay all your current loans. It could be that your entire unsecured loans will be consolidated to a single unsecured loan or you can get a single secured loan to pay off all your unsecured loans. Secured loans require collateral to acquire the loan. The collateral comes in the form of house, car or land. Sometimes, jewelries and other valuable materials are also considered as collateral. Because of the presence of a security deposit, the secured loan is actually a low-risk loan for the part of the creditor. In case the debtor does not repay the amount borrowed on the stated maturity date then the creditor gets the asset which served as the collateral. He can then keep the collateral for himself or sell it to get back the money he lent to the borrower.
In effect, he is willing to peg lower interest rates and gives way to better payment schemes. Unsecured loans have higher interest rates than secured loans. This is because the creditor faces a higher risk when lending money in an unsecured loan. Unsecured loans such as credit card, shop cards and the like do not require collateral or security deposit.
One benefit of debt consolidation is the low interest rates. If you are a good and patient researcher, then you might find a debt consolidation loan that has interest rate that is seventy five percent lower than the interest rates offered by credit card companies or other unsecured loans. When you get a debt consolidation loan, remember that you must agree on a monthly payment which you will be able to repay.
If you could not pay the monthly obligation, then your debt consolidation will be useless. A debt consolidation calculator is used to compute for the amount that you can borrow as well as the monthly payment. Flexible payment schemes are also offered by debt consolidation companies. There are also companies which offer benefits if you pay twice or thrice the monthly amount in one payment.
Why Bad Debt Must be Paid Off First
You may heard credit specialists on cable and financial websites teach about “ good debt ” and how it contrasts with bad debt. You are taught to pay off your bad debts first because they normally are tied to costly interest rates and are not balanced by something of value. It’s good to first understand the distinction between good and bad debt when you are looking into a debt reduction program.
All You Need to Know Concerning Good Debt
- What’s Good Debt? A good debt is any obligation that can actually increase your net worth. The rule follow is: if holding the debt could create a spike in your net worth, then it is thought of as a good debt. Good debt will develop a profit for you through an escalation in value or business sales. Perhaps, a good debt may additionally be a debt that causes a rise in your overall quality of life. Finally, a debt that’s tax deductible, which means that holding the debt decreases your tax bill every year, should without question be put in the category of a good debt.
- What are A Couple Examples of Good Debt? The most important example of a good debt would be a house loan. Assuming that it is backed by a property or portion of terrain that’s increasing in value, a mortgage loan creates an income through the equity that’s developed in the house. A further example of good debt would be a college loan, due to the fact that it is back by learning and should produce later income. A new business line of credit can additionally be thought of as a good debt if the business breaks a profit and results in an ongoing residual income.
Why Do People Refer To Certain Debt Bad Debt?
- What’s the Easiest Way to Decide If I am Dealing With Bad Debt? Simply put, if the credit account doesn’t produce additional worth for you and/or your bottomline, then it is bad. An auto loan is not a good loan due to the fact that vehicles go down in worth. The rule of thumb is that as soon as you take a new automobile off of the dealership you leave behind 20 percent in worth, and that decrease in worth carries on right up until the automobile is paid in full. The most widespread example of bad debt would be your credit card bills. Credit cards are the most damaging kind of bad debt for three major reasons: 1) it is not associated with objects of worth (except if you consider the sandals you got in 1998 something of worth!), 2) it commonly carries an expensive rate, and 3) it is a rotating account that could continue all through your life.
How Do I Get Rid of My Bad Debt?
You have a few options when you’re searching for a debt solution. Some the population decide on a bankruptcy lawyer, which may eliminate your debt but cause you to be denied by future banks, jobs, and other businesses for up to a decade. Some debtors settle on their own debt reduction plans, and many have learned about the advantages of plans proposed by debt settlement companies. Whatever approach you settle on, your bad debt should in every case be the first on your list because it it high in cost and in effect takes value from your bottomline.