Life Settlements
AC Associates
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Other Involved Parties:
Underwriters - Provide life expectancy estimates on the insured for pricing purposes.
Steps in a Transaction
Policy owner consults with an advisor, decides to sell his or her policy.
Client & advisor submit policy for valuation. Client releases medical information.
If policy meets criteria for a life settlement, providers send offers.
Client and advisor review offers and client accepts their preferred offer.
Client and advisor complete the provider's closing package, and return essential documents.
Provider places cash payment in escrow and submits change of ownership forms to the insurance
carrier.
Paperwork is verified and funds are transferred to the policy seller.
Life Settlement History
Although the secondary market for life insurance is relatively new, the market was more the 100 years in
the making. The life settlement market would not have originated without a number of events, judicial
rulings, and key individuals.
The Policy as Transferable Property
The Supreme Court case of Grigbsy v. Russell (1911) established the policy owner’s right to transfer an
insurance policy. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all
the ordinary characteristics of property, and therefore represented an asset that a policy owner could
transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best
recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in
a life insurance policy on the same legal footing as more traditional investment property such as stocks
and bonds. As with these other types of property, a life insurance policy could be transferred to another
person at the discretion of the policy owner.
This decision established a life insurance policy as transferable property that contains specific legal
rights, including the right to:
Name the policy beneficiary
Change the beneficiary designation (unless subject to restrictions)
Assign the policy as collateral for a loan
Borrow against the policy
Sell the policy to another party
A second milestone occurred in 2001 when The National Association of Insurance Commissioners
(NAIC) took a crucial step by releasing the Viatical Settlements Model Act defining guidelines for avoiding
fraud and ensuring sound business practices. Around this time, many of the life settlement providers that
are prominent today began purchasing policies for their investment portfolio using institutional capital.
The arrival of well-funded corporate entities transformed the settlement concept into a regulated wealth
management tool for high-net-worth policy owners who no longer needed a given policy. Strong demand
for life settlements policies is driving a rapid market expansion that continues today.
Major Study Findings
One major study that showed some of the potential of the life settlement market was conducted by the
University of Pennsylvania business school, the Wharton School. The research papers, credited to Neil
Doherty and Hal Singer, were released under the title "The Benefits of a Secondary Market For Life
Insurance." ([1]) This study found, among other things, that life settlement providers paid approximately
$340 million to consumers for their under performing life insurance policies, an opportunity that was not
available to them just a few years before.
"We estimate that life settlements, alone, generate surplus benefits in excess of $240 million annually for
life insurance policyholders who have exercised their option to sell their policies at a competitive rate." -
Wharton Study, pg 6
Another study, perhaps even more influential, was the Conning & Co. Research study "Life Settlements:
Additional Pressure on Life Profits." This study found that senior citizens owned approximately $500
billion worth of life insurance in 2003, of which $100 billion was owned by seniors eligible for life
settlements. Since 2003, more and more of these eligible senior clients have sold their policies and
helped the market increase.
Other Life Settlement Fast Facts:
Market data
Policy owners 65+ - 36 Million
Active Life Insurance Producers - 175,000
Life Settlement Brokers - 178
Life Settlement Providers - 34
Estimated Amount of life policies to be purchased by providers in 2005 - $10-15 billion
Underwriters - Provide life expectancy estimates on the insured for pricing purposes.
Steps in a Transaction
Policy owner consults with an advisor, decides to sell his or her policy.
Client & advisor submit policy for valuation. Client releases medical information.
If policy meets criteria for a life settlement, providers send offers.
Client and advisor review offers and client accepts their preferred offer.
Client and advisor complete the provider's closing package, and return essential documents.
Provider places cash payment in escrow and submits change of ownership forms to the insurance
carrier.
Paperwork is verified and funds are transferred to the policy seller.
Life Settlement History
Although the secondary market for life insurance is relatively new, the market was more the 100 years in
the making. The life settlement market would not have originated without a number of events, judicial
rulings, and key individuals.
The Policy as Transferable Property
The Supreme Court case of Grigbsy v. Russell (1911) established the policy owner’s right to transfer an
insurance policy. Justice Oliver Wendell Holmes noted in his opinion that life insurance possessed all
the ordinary characteristics of property, and therefore represented an asset that a policy owner could
transfer without limitation. Wrote Holmes, “Life insurance has become in our days one of the best
recognized forms of investment and self-compelled saving.” This opinion placed the ownership rights in
a life insurance policy on the same legal footing as more traditional investment property such as stocks
and bonds. As with these other types of property, a life insurance policy could be transferred to another
person at the discretion of the policy owner.
This decision established a life insurance policy as transferable property that contains specific legal
rights, including the right to:
Name the policy beneficiary
Change the beneficiary designation (unless subject to restrictions)
Assign the policy as collateral for a loan
Borrow against the policy
Sell the policy to another party
A second milestone occurred in 2001 when The National Association of Insurance Commissioners
(NAIC) took a crucial step by releasing the Viatical Settlements Model Act defining guidelines for avoiding
fraud and ensuring sound business practices. Around this time, many of the life settlement providers that
are prominent today began purchasing policies for their investment portfolio using institutional capital.
The arrival of well-funded corporate entities transformed the settlement concept into a regulated wealth
management tool for high-net-worth policy owners who no longer needed a given policy. Strong demand
for life settlements policies is driving a rapid market expansion that continues today.
Major Study Findings
One major study that showed some of the potential of the life settlement market was conducted by the
University of Pennsylvania business school, the Wharton School. The research papers, credited to Neil
Doherty and Hal Singer, were released under the title "The Benefits of a Secondary Market For Life
Insurance." ([1]) This study found, among other things, that life settlement providers paid approximately
$340 million to consumers for their under performing life insurance policies, an opportunity that was not
available to them just a few years before.
"We estimate that life settlements, alone, generate surplus benefits in excess of $240 million annually for
life insurance policyholders who have exercised their option to sell their policies at a competitive rate." -
Wharton Study, pg 6
Another study, perhaps even more influential, was the Conning & Co. Research study "Life Settlements:
Additional Pressure on Life Profits." This study found that senior citizens owned approximately $500
billion worth of life insurance in 2003, of which $100 billion was owned by seniors eligible for life
settlements. Since 2003, more and more of these eligible senior clients have sold their policies and
helped the market increase.
Other Life Settlement Fast Facts:
Market data
Policy owners 65+ - 36 Million
Active Life Insurance Producers - 175,000
Life Settlement Brokers - 178
Life Settlement Providers - 34
Estimated Amount of life policies to be purchased by providers in 2005 - $10-15 billion