Understanding Life Settlements

The AIDS epidemic gradually faded from the headlines, but not before giving rise to the multi-billion-dollar business called “life settlements.” By the mid-to-late 1990’s, well-to-do people without terminal illnesses had discovered they could increase their net worth by selling a policy to commercial investors with some legal protection, and multiple buyers to select from and to negotiate with. To date, no policy has been found to be too big—a $20,000,000 policy could now be sold.

However, not everyone benefited equally. The problem was that the cost involved with the transaction made policies of less than $250,000 unattractive. The cost to process the changes and the limited profit potential has left the majority of policyholders out of the loop for this kind of transaction. That may be changing, but clearly the larger policies are where the action is.

Independent estimates report that among high net worth individuals age 65 and older, 20% of policies have a market value that exceeds the cash value offered by the carrier. And while many policy owners are unfamiliar with life settlements until a financial professional mentions the option to them, the concept has gained attention from high-profile proponents such as Warren Buffett, former U.S. Representative Bill Gradison, and numerous media sources including The Wall Street Journal, Time Magazine, Business Week and The Economist. A growing number of experts now believe that informing clients about offering life settlements should fall under the fiduciary duty of a financial adviser.

If you’ve read this far, it is likely that you are either a professional advisor or you are someone with a life insurance policy of $250,000 or more. This book is for you. It will show you what you need to know and the questions you need to ask in order to avoid problems and take advantage of this exciting industry.

Addendum

A. What kind of a policy do I have

B. Probability of a sale worksheet

C. 1980 and 2001 mortality tables

D. Financial underwriting limits

E. Life insurance company addresses