A “Life Settlement” is the transfer of the beneficial interest in a USA life insurance policy, by the insured person to a third party (in this case, the Fund).
The policy owner transfers their policy at a discount to its Face Value in return for an immediate cash settlement. The purchaser of the policy is then responsible for premiums payable on the policy and will be entitled to receive the full Face Value from the insurance company upon maturity (death of the insured).
Complementing Your Asset Allocation Strategy
Diversification into the insurance linked securities sector is a well-recognised option in portfolio construction, subject to the client’s risk appetite and liquidity constraints. When planning for strategic asset allocation, an investment in a portfolio of secondary life insurance policies can prove to be a powerful tool during periods of severe and prolonged market volatility. A longevity based investment that allows you to diversify your portfolio into an alternative asset class. The underlying assets are uncorrelated to events in the stock, bond or property markets. This helps reduce the volatility in your investment, whilst maintaining the potential for a strong return.
Why do people sell their life insurance policies?
Most people acquire life insurance early in their careers as a means of protecting their income and family in the event of an unexpected event. However, over time, changes in people’s circumstances often mean that individuals want access to the value “locked-in” their life insurance policy prior to their death. In the USA people are becoming increasingly aware that their life insurance policy may qualify for a Life Settlement.
These changing circumstances could include the following:
- The insured may have outlived the beneficiaries the policy was originally intended to protect.
- Premiums may have become unaffordable and unless sold as a Life Settlement the insured may have to let the policy lapse.
- The insured may be financially secure and have no further need for the policy.
- The insured may wish to make a gift of the monetary value of the policy while they are still alive.
- The insured may sell the policy for estate planning purposes.
- The insured is considering whether or not to lapse or surrender the policy for its cash surrender value.
In circumstances where the alternative for the insured is to let the policy lapse and lose a potentially large portion of the premiums which have been paid on the policy, a Life Settlement is an attractive option.