What is a Life Settlement?
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?
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?
What is in it for me?
- Potential for substantial investment gains
- Policies backed by the claims paying ability of "investment grade" rated life insurance companies
- Strong intrinsic value
- Ability to reduce overall portfolio volatility
- Separate and distinct asset class
- Viable alternative to traditional instruments
- Low correlation to equity and debt markets
- Free from most economic drivers
- Low maintenance
Life Settlements Better for Seniors
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
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."