Defining Life Settlements
What Are Life Settlements?: A life settlement is the sale of a life insurance policy to an investor for cash.
In a life settlement transaction, a seller transfers ownership of their policy to a buyer.
All aspects of ownership transfer, including the premium payments and death benefit. Consequently, the original policyholder’s beneficiaries no longer receive anything upon the death of the (formerly) insured.
In exchange, the original policyholder receives a cash payment. As a result, the purchaser of the policy will be entitled to receive the death benefit from the insurance company upon maturity (death of the insured).
Investing in Life Settlements
Currently, we make an investment into the US Life Settlements Market a possibility. Our Global Insurance Settlements Funds PLC is a purpose-built investment structure. It is an Irish Qualified Alternative Investment Fund (QAIF). As a result, it's capable of housing multiple separate sub-funds. Along with the already established QAIF we have created bespoke structures to meet specific investors needs. Just tell us what you need, and we will build it.
Investment in US life policies offers the opportunity for very attractive US$ denominated returns once you appreciate its strengths and limitations.
We explore the main reasons behind investing in life settlements in our article “6 Reasons to Invest in Life Settlements”
Essentially, a longevity-based investment that allows you to diversify your portfolio into an alternative asset class. Diversification into the insurance-linked securities sector is a well-recognised option in portfolio construction. Clearly, the underlying assets are uncorrelated to events in the stock, bond or property markets. Certainly, 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. Above all, this acts as a means of protecting their income and family in the event of an unexpected event. However, over time, circumstances change and they no longer need the policy. As a result, individuals can access 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 policy is sold for estate planning purposes.
The insured is considering whether or not to lapse or surrender the policy for its cash surrender value.
Certainly, 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.