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The Life Settlement Market

The Journal of Structured Finance (Life Settlements: A Secret No More) in the summer of 2006 wrote that the life settlement market continued to expand in 2005 and, depending on the source of the information, was estimated to have been between $10 billion and $20 billion in face amount of policies traded. On the basis of those numbers, the market has doubled and by some estimates, tripled, over the course of the last three years.

2006 Bernstein Research (Life Insurance-Life Settlements Update) indicates that the life settlement market is in the midst of high growth and will continue its upward trend as the baby boomer generation enters retirement. Industry experts predict that by year 2030, there will be 72 million seniors age 65+ who will control $800 billion of life insurance, of which $161 billion would be eligible for life settlements.

According to 2006 statistics released by the Life Insurance Settlement Association (LISA) in the LISA White Paper of August 22, 2006, nearly half of all life settlement transactions result in the purchase of new insurance policies.

A life settlement involves the purchase by a third party (i.e., institutional investors such as banks, insurance companies) of a life insurance policy which has become unnecessary or unwanted. Life settlements are a relatively new part of the financial services universe but they represent a large market which is experiencing exponential growth.

A policy which qualifies as a life settlement has a market value higher, often significantly higher, than the policy's cash value. Proceeds from a life settlement can be used during the insured's lifetime for business, personal or charitable purposes.

Life settlements are generally an option for your clients over age 65 that have owned the policy for more than two years with a death benefit of $250,000 or more and:

Have a policy that is no longer needed or wanted

Have experienced a decline in health since policy issue

Have a policy that has not performed as expected

Have premium payments which are no longer affordable

Entered into a divorce settlement that alters the need for life insurance

Have a need to distribute funds while living (i.e. long-term costs)

Wish to gift the proceeds of a sale that results in a larger gift to a charity than the policy

Have business or personal circumstances that have changed

     
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