Life insurance settlements provide an investment opportunity that is uncorrelated to traditional markets. A life insurance settlement involves the sale of an existing life insurance policy to a third party. This provides policy owners with a payout that is typically 4 to 6 times the policy's cash surrender value. For investors, life insurance settlements offer safety of principal, guaranteed returns, and are not affected by market volatility like traditional assets. The life insurance contract is a non-contestable agreement guaranteed to pay out the death benefit.
2. WHAT IS A LIFE INSURANCE SETTLEMENT?
A Life Insurance Settlement (“Life Settlement”) is the sale
of an existing life insurance policy to a third party for
more than its cash surrender value but less than its net
death benefit.1
The life insurance policy is a non‐contestable unilateral
contract that is guaranteed to pay out the face value
that it was written for.
1. Life Insurance Settlement Association, www.thevoiceoftheindustry.com
3. THE SAFETY OF A LIFE INSURANCE CONTRACT
The Life Insurance Policy ‐ Features protect the client
– Unilateral, Non‐contestable contract
– 2 year contestability period
– Underwriting
– Policy Assignability1
– Over 100 year track record that has never failed to perform
1. Grigsby v. Russell 1911: US Supreme Court; Ruled that owners of insurance policies have the right to transfer their policy just like any other asset they own.
4. THE SAFETY OF A LIFE INSURANCE COMPANY
The Life Insurance Company
– Closely regulated by each State’s Insurance Department
• NAIC
– “From conservative accounting rules and mandatory annual CPA audits to investment regulations/limitations and minimum
capital/surplus requirements, a state insurance regulator’s “toolbox” allows insurers to handle greater losses than other
parts of the financial sector in down‐market cycles.”
NAIC Sept 2008: State Regulators: AIG Insurers Able To Pay Claims, State Solvency Standards Protect Policyholders
– Reserve requirements far exceed minimum standards
• Risked Based Capital Ratio (RBC)1
– Average RBC for life Insurers in 2007= 407%
– 93% of life insurers held an RBC of 200% or more in 2007
» These insurers held 99% of the industry’s assets
ACLI 2008: 2008 Life Insurers Fact Book
– State Guarantee Associations for Life Insurers
• Prior to reaching the State guarantee association, the State’s Insurance Commissioner attempts to
rehabilitate the insurer and then liquidate assets.
– Policies are generally sold to other solvent life insurers who will honor the full claim upon maturity.
• State Guarantee Association protects policyholders from insurer insolvency by honoring claims
• State Guarantee Associations have provided protection for more than 2.3 million policyholders.2
1. Risked Based Capital ratio (RBC) = Total Adjusted Capital / Risked Based Capital (risks/liabilities in insurer operations)
RBC is the minimum capital required to avoid triggering regulatory action.
2. NOLHGA – National Organization of Life and Health Insurance Guarantee Associations
5. THE LIFE SETTTLEMENT INDUSTRY
• With a much higher degree of regulation, the
industry has attracted major players in the
investment community such as Goldman Sachs,
Credit Suisse, Warren Buffett and Morgan Stanley.
• The Life Settlement market is targeted to reach
over $150 billion by 2016.1
• The total outstanding dollar value of life insurance “…over the long‐term, we feel
the settlement business, if
policies is approximately $27 trillion (USD). 2 conducted in a responsible
manner, could have favorable
• The average settlement policy pays policy owners ramifications for
4 to 6 times the policy’s cash value. 3 policyholders and the life
insurance industry.”
• It is estimated that 90% of all life insurance Bernstein Research Call 2005: Life Insurance
Long View – Life Settlements Need Not Be
policies lapse. 3 Unsettling
1. Conning Research & Consulting, Life Settlement Market, Increasing Capital and Investor Demand, 2007
2. ACLI 2008: 2008 Life Insurers Fact Book
3. Life Insurance Settlement Association: www.thevoiceoftheindustry.com
6. TRADITIONAL MARKET CONDITIONS
• Traditional equity market assets reflect
market conditions.
• In recent times losses have risen above
40%.
• Potential for negative rates of return.
“…subcommittee member Rep.
• Uncertainty regarding the outcome exists Alan Grayson (D ‐ FL) cautioned
the committee to not confuse
with traditional market investments. the Wall Street mischief that led
to the current economic
• Investments are exposed to the volatility hardships with an industry
that's "helping people get the
of today’s marketplace. full value of their policies."“
LISA (via FinancialContent.com) Sept 2009: LISA
Delivers Senate Testimony on Industry’s Value to
Consumers and Dismisses the Media’s
Sensationalist Take on the Industry
7. LIFE SETTTLEMENTS PROVIDE SAFETY OF PRINCIPAL
• Life Settlements are not correlated to “… the continued influx of
capital as institutional
traditional markets in any way. investors sought non‐
correlated investment
• A Life Settlement (Life Insurance contract) opportunities. At the same
accretes in value over time. time, we noted growing
participation of smaller
• Life Settlements provide investors with an investors in life
settlements mutual funds.”
absolute fixed dollar amount of return. Conning Research & Co 2007: Life
Settlement Market: Increasing Capital and
• 100% certainty of event/performance. Investor Demand
8. WHAT ARE THE BENEFITS TO THE POLICY OWNER?
• Typically, insurance companies offer Example
few options for exit strategies from
unneeded policies. Cash surrender
values normally reach only 3‐5% of the
policy’s face value.1
• The Life Settlement industry has
provided policy owner’s with an option
of a secondary market.
• Settlement values range from 4 to 6
times cash surrender values. 1
1. Life Insurance Settlement Association, www.thevoiceoftheindustry.com
9. WHAT ARE THE ACCREDITED INVESTOR BENEFITS?
Example
• Life Settlements are absolutely not
correlated to any traditional market.
• A Life Settlement investment produces an
absolute fixed dollar amount of return.
• Life insurance is a non‐contestable, unilateral
contract.
• Death benefits are guaranteed to be paid
regardless of market status. The product has
not failed to produce for the past 100 years.
• Investing in large numbers of Life
Settlements ensures greater predictability of
the investment. Calculation based on policy with face value
of $2,000,000, annual premium of $30,000
and an initial settlement value of $500,000.