Life Settlements
Defined
A life settlement is the sale of an existing life insurance policy held by
an elderly person to another party. It is a growing trend in the financial markets today. The price of the policy
is negotiated with the owner who receives a portion of the face value for transfer of the policy. Once the life insurance
policy has matured, the investor then collects the full amount paid out under the policy. (*1)
Life insurance policies are purchased at discounts
to their face value which fall into general brackets according to the life expectancy of the owner or insured. These
discounts will vary slightly based on individual policy features and market conditions.
Yield is computed from the difference between the cost basis (including any premiums paid) and the amount paid out
under the policy upon the demise of the insured. An annualized return on investment may be derived from this yield by
adjusting it for the holding period of the investment.
The acquisition cost includes all fees and costs associated with the acquisition of the policy as well
as an amount for the payment of premiums during the maximum life expectancy of the insured as determined by independent
medical consultants. In the event the escrow is depleted before the demise of the insured, the purchaser is responsible
for replenishing the account to the extent of their interest in the policy. Likewise, in the event the policy matures
earlier than the estimated maximum life expectancy, unused premiums remaining in escrow account are returned to the purchasers
in addition to their share of the policy proceeds.
Life settlements provide a valuable service for both the investor and the insured. To
the investor, a life settlement is a long term investment. To the insured the sale of their personal policy means a
chance to receive money today for an asset they no longer need.
Life settlement
providers act as matchmakers between life settlements and their investors, making the best possible union based on the individual
goals of each purchasing investor. Life settlements are available to accredited investors both through "cash"
and IRA or other qualified plan investments and to institutional investors.
Origin of the Investment
The viatical industry was first conceived in Europe in the 1880s.
The United States, however, did not venture into viaticals until 1989 with the onset of HIV. Individuals who had the virus
often found themselves in financial straits, with expensive costs of medication and treatment. This led to resourceful individuals
finding that they had an extremely valuable asset – a life insurance policy with a death benefit that could possibly
be realized in a very short amount of time.
Investors helped those in need by providing them with the capital necessary to pay for medical
treatments to help prolong their life, while at the same time making a sizeable return on their investment.
Since
then, this investment has matured into a viable investment to diversify portfolios. It has offered many investors
a great diversification tool.
"We help people invest through education."
(*1) Based on the
full faith and credit of the underlying insurance agency
For more information call:Dallas area: 214-234-7400 or 800-945-3349
California area: 866-966-1717
The following information is for informational purposes
only. It is not a solicitation to sell/offer to buy. It is obtained from sources believed to be reliable; accuracy and completeness
is not guaranteed. Opinions expressed are the author's and subject to change without notice. Prices and availability are subject
to change.
