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Life Settlements (cont.)How Life Settlements Work In a life settlement transaction, there is a chain leading from the seller of the policy to the end buyer of the policy (known as a life settlement provider.) Each link in the chain has a different responsibility in facilitating the transaction and ensuring that it runs smoothly, while outside vendors typically assist the provider with specialized functions. Life Settlements Policy Sellers Senior citizens who have the greatest chance of selling their policies generally are over 65 years of age, have a calculated life expectancy of more than two years, but less than ten years, and may have experienced a health change that has led to their insurance premiums increasing. This undesirable scenario, often coupled with increasing health care and/or nursing home care costs, makes a life settlement an attractive option to many seniors. There are certain restrictions for their policies as well - policies must be valued at $100,000 or more, and depending on the life expectancy determination of the seller, any and all types of policies can be sold, i.e.; universal life, whole life, or convertible term contracts.
Financial Advisors Senior clients often discuss life settlement transactions with their financial advisors instead of conducting the transaction on their own, since their advisors are usually much more familiar with this non-mainstream financial product. Some examples of advisors that are becoming increasingly involved in the life settlement arena are:
Brokers The decision to work with a broker is up to the client, since financial advisors can submit the client's case to the life settlement provider directly. However, in an industry where market value for life insurance policies is not common knowledge, brokers typically do the best job of obtaining fair market value for a senior citizens policy. By submitting life settlement cases to multiple providers, they are able to obtain a greater number of bids overall, and help facilitate negotiations between high bidders. For a list of qualified, licensed brokers, please visit the LISA website. Providers Life settlement providers are responsible for paying the client a cash sum greater than the policy's cash surrender value. The top providers in the industry fund many transactions each year and hold the seller's policy as a confidential portfolio asset, and do not make it available to outside investors. They also have in-house compliance departments to carefully review transactions, give seminars to both financial professionals and senior citizens about life settlements, and most importantly, they are backed by institutional funds from a major bank. Other Involved Parties
The Life Insurance Settlement Association and the Life Settlement Institute Since the inception of LISA in 1995, the focus has shifted from primarily viatical settlement firms to life settlement firms. The primary purpose of this organization is to "promote responsible legislation and regulation of the industry." This non-profit organization accepts member firms who comply to ethical standards and are fully licensed to conduct business in the life settlements field. The Life Settlement Institute, a group with similar goals as LISA, took things a bit further and sought to increase life insurance and financial professionals' awareness of the industry. Around this time, professionals began placing articles in trade publications such as California Broker, Life Insurance Selling, National Underwriter, Trusts & Estates, etc., further implementing life settlements as a mainstream financial product. |
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