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'Innovation is the specific instrument of entrepreneur-ship... the act that endows resources with a new capacity to create
wealth.' (Drucker)
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The US Life Settlement Industry
The market for senior life settlements (SLS) emerged in the 1990s and is fast growing. According to independent research it is forecast to reach $160billion by the year 2030.
Given the obvious consumer appeal, it is no surprise that life settlements have quickly developed into a viable and attractive choice.
How does the SLS market work?
A payment is made to the policy owner by the purchaser. This will be for less than the death benefit but more than the surrender value. The purchaser becomes the beneficiary of the life insurance and pays the premiums due, keeping the policy in force until the death of the life insured when the purchaser is entitled to recoup the full death benefit.
Low surrender values offered by insurers have created the market opportunity. Surrender values are often so low that a settlement provider can afford to pay more and still achieve returns well above market norms. Whilst the term of any individual life is an unknown quantity, the average life expectancy of a group of seniors can be projected quite accurately using statistical probability, thus rendering life insurance as a more predictable time-value instrument. Life settlements are based on actuarial results related to a population normally in average to good health with expectancies generally between 3 and 15 years. SLS is an excellent form of investment
Over recent years, the SLS industry has emerged as a reputable and well regulated market which attracts some of the biggest named institutions in global investment.
Current market forces mean that IRRs outperform those of most other similar instruments; end values (death benefits) are generally guaranteed; and life expectancy forecasting is becoming increasingly accurate. Best of all, the asset class is totally uncorrelated to all the usual forms of investment – an important consideration for investors in today’s uncertain economic circumstances.
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People who have taken out Whole Life policies may find their circumstances have changed and as a result no longer want, need or can afford their policy. Without a settlement their options are limited to either surrendering the policy back to the insurer or allowing the policy to lapse and forfeiting any value. A settlement normally provides a materially better option to surrendering the policy when money may be needed in later life.