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Unneeded or underperforming insurance policy holdings? Ever
thought or heard of a financial services valuation tool and
strategy called life insurance settlements? Well, if not, the
capital markets certainly have heard and taken notice. Life
Insurance Settlement companies purchase unwanted or un-needed
life insurance policies from individuals and ultimately collect
the death benefits. These payments are passed on to third-party
institutional investors who are looking for returns that are not
correlated with existing portfolios. A key component to this
growth expectation is that business is conducted in a responsible
manner. Poor sales practices by settlement firms could hamper
growth and spark a new wave of litigation. At present, there is
roughly $13 billion of total in force settlement business. While
small compared to the $9 trillion of individual life business on
the industry's books, the settlement market has grown about eight
times faster than non-traditional life insurance. This growth
rate differential will continue and could expand over the next
few decades, which will draw more attention to the settlement
business and senior life settlement in particular.
Here is a description of the dynamics at work and a little
background detail about process:
* A life insurance settlement is a transaction in which
policyholders sell the rights to the death benefits
associated with their insurance policies to third party
settlement companies. In other words, this process in effect
creates a secondary market for life insurance products - like
life insurance settlements. The typical market for these
products includes individuals over the age of 65 with life
expectancies of 4-10 years.
* A settlement firm, representing third-party investors, or
better yet, an institutional funder, will provide a cash
payment to the policyholder that exceeds the cash surrender
value embedded in the policy. From that point on, the
original policyholder will have no further involvement or
association with the policy.
* The life settlement firm will continue to make premium
payments on the policy to the life insurer, until a death
benefit is claimed.
* The death benefit will be collected by the settlement company
and passed on to third party investors, who are likely
interested in returns that are not highly correlated with
their other assets. (Source: Corporate reports and Bernstein
Estimates)
A life settlement, to summarize, is basically the sale of a life
insurance policy at a price, higher than the cash surrender
value. Many seniors are realizing the extraordinary benefits of
unlocking the dormant asset value of life insurance, allowing
them to better plan for their future through what is essentially
newly-found money. Life
insurance settlements are increasingly offering seniors
viable options for their life insurance policies, and, as we are
now seeing, more financial options can be rewarding indeed.
Writer's Resource Box:
Life Insurance Settlement Experts
http://www.life-settlementco.com
Jon Thomas has been involved in finance and insurance,
specializing in emerging growth markets since 1979.
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