Life Settlements
What Is A Life Settlement ?
A life settlement allows policy owners, typically seniors aged 65 and older, to sell their life insurance policies for a lump sum payment. It provides an opportunity to access funds for retirement or financial needs while still alive. Established by the landmark case of Grigsby v. Russell in 1911, life settlements are a legal option to sell your life insurance policy as personal property.
Origin
Grigsby v. Russell, a case decided by the United States Supreme Court in 1911,
established the precedent for life settlement choices by defining life insurance as personal property. As with any other asset, the court ruled that you have the legal right to sell your life insurance policy.
Few policyholders pursued life settlements in the years that followed, even though
Grigsby v. Russell provided the legal foundation for life settlements in the early 1900s. When the AIDS pandemic peaked in the 1980s, everything changed. There were no good treatments available at the time, and there was less knowledge about AIDS. Patients’ life expectancies were exceedingly low, and they incurred extraordinarily large medical costs as their doctors attempted to prolong their lives. Selling their life insurance to pay for medical expenses was a matter of life or death.
Frequently Asked Question
• Many people who have purchased life insurance for themselves did so when they were younger, when they had a reliable source of income and dependents to support. Fast forward a few decades, and their kids are old enough to support themselves; they aren’t making the same income as they once were, and they did not account for the future premium payments on their policy. In this industry, you will continually see people who can’t afford or can’t keep up with the premiums as they age.
• Once you get into the 65+ range, your medical bills and other necessities start to go up, and in many cases, drastically. Having a lump sum of money come in during your retirement age can have a substantial impact on a person’s quality of life.
• The majority of life settlement companies only purchase permanent policies with a death benefit of $100,000 or more. Those policies include whole life, universal life, and term life that converts to permanent life. Before the purchase, they would do a full medical background check on the individual to see the status of their health. And with that comes a life expectancy report. Very simply (it’s in the name), actuaries predict approximately how long an individual has to live based on modern-day technology and science. The healthier an individual is, the less the policy is worth in the market.
• Life Insurance companies are businesses that adhere to the legal reserve standards specified by state insurance legislation.
• Legal Reserve firms demonstrated their greatest power during the Great Depression of 1929–1938, when 9,000 banks ceased operations while 99% of the life insurance in force remained unharmed. Many people are unaware that it was US insurance companies, not the government, that bailed out the banking system during the Great Depression. In the event of a financial collapse, insurance companies would be second only to the US government in terms of failure.
• The Life Insurance Settlement Association is the oldest and biggest trade association in the life settlement sector, having been founded in 1994.
• Its goal is to advance the industry’s highest standards of practice and professional growth while educating clients and advisors about life settlements as an alternative.
Life Settlements As An Investment
Life settlements are a unique asset class in the world of investing, often overlooked by retail investors due to their historical association with institutional players such as banks, funds, and insurance companies. Unlike traditional investments, life settlements are non-correlated to market fluctuations and are solely dependent on the insured individual’s lifespan.
With life settlements, you can sidestep the need to constantly monitor stock market performance or real estate market trends. Instead, the investment’s returns are tied to the insured’s longevity. When approached with proper precautions, life settlements offer a reliable and steady Internal Rate of Return (IRR) and Return on Investment (ROI).
