3 reasons why life settlements are on the rise
The life settlement market has rebounded from the downturn that started in 2007 and is currently on an upswing with strong growth predicted once again in 2014. Here are three contributing factors to the market’s brightening outlook:
1. You can expect to receive four times more than the cash surrender value
Your client will receive approximately four times more by selling their no longer needed or no longer affordable life insurance policy to an investor through a life settlement than they would from obtaining its cash surrender value from the insurer.
This is according to research released in Dec. 2013 from the London Business School, which studied 9,000 policies that were the subject of a life settlement between 2001 and 2011.
2. More than 40 million Americans over age 75 – a significant percentage of them settlement candidates.
The 40 million+ over-75 crowd owns between $700 and $800 billion worth of life insurance policies. It is estimated that 20% of the policies owned by this group are candidates for settlement, according to Life Insurance Settlement Association President and CEO Darwin Bayston. Too many agents and financial advisors remain uneducated about life settlements, and therefore are not including this option among their recommendations to clients for whom it may be an appropriate strategy.
3. Quality and quantity of policies on the market has improved
The life settlement market is on an upswing, according to The Deal Pipeline’s 2014 Market Outlook for Life Settlements. The market increased by 20% in 2013 and is expected to continue to grow in 2014 as there is increased interest by investment groups in buying policies. And the quality of those policies has increased. This from LISA member Dan Young, president of Magna Life Settlements, on the LISA blog page:
“…We are seeing more policies that are eligible to purchase since the decline of 2008. In my view, the market is robust and getting stronger. The quantity of manufactured paper and other “junk” that has no value to life settlement investors has become near non-existent and the quality of the policies in the market has dramatically increased. Thus the percentage of policies that can be purchased has actually increased. This is due to the market players becoming more sophisticated and understanding what policies have the highest probability of being purchased. It is also the result of increased consumer awareness. Several states now require life insurance carriers to notify policy owners about the life settlement market, when they are about to lapse a policy and Medicaid statutes in several states have proposed to use life settlements to fund health care. These measures and concerted efforts by the Life Insurance Settlement Association and the industry is raising the awareness of policy owners of the life settlement option.”
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