secondary market watch

How to Invest a Lump Sum from a Life Settlement


October 12,15 | 12:00 am

retired couple lake

Unless you’re a finance geek—like all of us here at Ashar—there’s not a whole lot about managing one’s finances that could really be called “fun.” Monitoring investments, keeping track of bills and taxes…for most people, that’s more obligation than choice.

But there is one financial event that actually can be fun, and not just to those of us who like to balance spreadsheets. Receiving a lump sum of cash can open up all kinds of possibilities, from paying off debts to helping cover a grandchild’s college tuition.

These are decisions you’ll have to make if you decide to do a life settlement. If you’ve got an unwanted or unneeded life insurance policy, rather than surrender it for its low cash value, you can work with a financial advisor to sell it on the Secondary Market. Institutional investors purchase your policy, often for far more than the cash value. Then you receive the lump sum, with no strings attached.

So what do you do then? We’ve put together a few tips to help you decide how to manage the sum.

  • If possible, consult your financial advisor. This would be step one for anyone who is able to work with an advisor, instead of handling all the money on one’s own. If you have one who manages your finances already, you’re covered. If you only hired one to help you with your life settlement, then consider extending his or her services to managing the lump sum as well. Chances are, he or she will be able to tell you about options that you wouldn’t have considered on your own.
  • Take care of debt. This is a good rule of thumb for most individuals, unless there are particularly complex financial circumstances. If you have debt you’re carrying from high healthcare costs, for example, you can wipe those out. And if you know that healthcare is an area of life that will continue to be expensive, you may want to put the rest of the money into a savings account specifically for that purpose. According to USA Today, the amount a 65-year-old retired couple should have saved to be confident that they can pay for their healthcare needs is $326,000. A lump sum payout from a life settlement is a good way to help you reach that amount.
  • Consider investments. Again, if you’re working with a financial planner to help you manage your payout, he or she will discuss your investment options with you. If you’re looking at managing your investments yourself, Forbes has several recommendations for how to invest a lump sum.
  • “Giving while living”: make a large gift to a charity you care about. This can be a very rewarding way to invest the proceeds from a life settlement, as you actually get to see the good your money is doing. This is especially true if the particular organization that you support happens to be in the midst of a capital campaign, or some other large fundraising campaign. Instead of waiting years to put that money to good use—which, of course, is also a wonderful way to give—you’ll be able to know that your money is coming at a point when it can provide the most value.

And the giving doesn’t have to be to a charity. Perhaps your grandchild is heading to college soon—you could help fund a college savings account. Or maybe a family member is going through a difficult time and could use some assistance. A lump sum payout gives you the freedom to help those you care about, whether they’re right in your neighborhood or half a world away.

  • Splurge! If you don’t need this money to secure your retirement, pay off debts, or ward against expensive healthcare bills, why not use it for something you’ve always dreamed of doing? Maybe that’s traveling to some place exotic (or not so exotic), or buying a condo in San Francisco, or taking a year off from everything to work on your Great American Novel. Whatever you do, just make sure you make a budget and stick to it, so you don’t end up stranded and penniless in Borneo—although, admittedly, there are worse things.

A lump sum settlement, managed well, can provide financial freedom in many ways, whether that’s clearing debt, paying for healthcare costs like long-term care, making a lifelong dream come true, or helping out the people or causes you love. If you think you might want to explore the life settlement option, take our seven-question quiz to see if your policy qualifies. Then contact Ashar today!

Call Now