The National Association of Securities Dealers Inc. warned seniors about the potential pitfalls of selling their life insurance polices for cash.
The transactions, known as "life settlements" or "senior settlements," involve selling a life insurance policy that is no longer wanted or needed to a third party, typically for more than the policy's cash surrender value but less than its net death benefit.
The NASD Investor Alert, issued last week, examines how the settlements work and the factors investors should consider when deciding whether to sell their policies.
The life settlement market has expanded rapidly in recent years, because settlements have proven profitable not only for institutional investors that purchase policies, but also for the companies and brokers handling the transactions.
Some studies suggest the potential market exceeds $100 billion, according to the NASD.
