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What is a Life Settlement?

In 1911, the United States Supreme Court ruled in Grigsby vs. Russell that insurance policies are legally viewed as financial assets which may be sold to a third party, just as any other tangible investment can be sold at the owner's discretion.
A Life Settlement is the sale of an existing life insurance policy that is no longer needed, wanted, or affordable. The original owner sales the ownership and beneficiary rights of the policy for a lump sum payment. Generally speaking, Life Settlements represent insured's who are 65 years of age or older with life expectancies ranging between 3 and 15 years.
Life Settlements have opened a large and growing secondary market for life insurance in which policy owners can access fair market value for their policies rather than accepting the lower cash surrender value from the issuing life insurance company. An investor buys the policy at a discount to the face value and holds it until maturity, at which point they receive the face value from the issuing insurance company.

Why Sell a Policy?

Q: Why would someone sell their life insurance policy?
A: There are many reasons why policy holders choose to sell their policy.
Some examples include:
  • As part of a change in estate planning or investment objectives.
  • To pay for healthcare costs for themselves or someone in their family.
  • To fund a more cost effective life insurance policy. One out of every three settlements results in the insured creating a new life insurance policy.
  • Premium payments are no longer affordable.
  • An alternative to surrendering the policy.
  • To provide a cash gift to family members, or to a charity.
  • Dissolution of a business.

Who is Investing?

The life settlement industry is dominated by institutional investment firms and the number of participants continues to grow every year. Likewise, as this market continues to mature, more and more suitable retail investors are participating in this growing sector. There are numerous reasons as to why such firms and individual investors are attracted to and participate in life settlements. For one, life settlements are inexpensive in relation to their intrinsic value. Furthermore, they represent an asset class which does not directly correlate to the stock, bond, or real-estate markets.

What is in it for me?

Returns
  • Potential for substantial investment gains
  • Policies backed by the claims paying ability of "investment grade" rated life insurance companies
  • Strong intrinsic value

Diversification

  • Ability to reduce overall portfolio volatility
  • Separate and distinct asset class
  • Viable alternative to traditional instruments

Unique

  • Low correlation to equity and debt markets
  • Free from most economic drivers
  • Low maintenance

Life Settlements Better for Seniors

Opulen Capital Explains How Seniors Can Benefit

Fresh off the heels of an in-depth report published by Conning Research and Consulting, and a survey from the Insurance Studies Institute, Opulen Capital has taken to the press to highlight how senior life settlements benefit our aging population. Simply put, far too many seniors are allowing policies to lapse, thereby losing a valuable asset. Opulen cites that "approximately 40% of insured seniors in 2010 were either unable to make the premium payment for their insurance policies or had them lapse."
 
Steve Ingles, Managing Director of Opulen Capital, a Life Settlement broker, stressed the value to seniors, saying 
"A Life Settlement is certainly the better alternative, compared to surrendering an insurance policy or just letting it expire. After all, life settlements actually give people financial benefits that are far greater than a policy's cash surrender value."

Baby Boomers and Life Settlements

How Baby Boomers are driving the Life Settlement Marketplace

A recent article published by the Life Insurance Settlement Association highlighted some startling figures facing soon-to-retire baby boomers:

  • "More than 10,000 baby boomers retire each DAY and will do so for the next 20 years."

  • "54% workers in their 60's do not have enough financial wealth to sustain themselves for the rest of their lives."

  • "60% of workers have less than $25,000 of savings and investments."

Seniors today are quickly facing the realization that, despite careful lifelong planning, they simply do not have sufficient funds to last throughout retirement. The baby boomer generation is now looking toward alternative options of all kinds, including reverse mortgages, putting off retirement, and increasingly - selling their insurance policy. As LISA points out, the life settlement option can have a potentially significant financial impact on the senior. "According to a 2010 Report by the U.S. Government Accountability Office, life insurance policies sold as a life settlement received on average seven (7) times more than the policy's cash surrender value, based on data they analyzed."