Life settlemant....

[lifesettlementadvisor]

For an informative read on LS check out:

Truth about Life Settlements - Life Insurance Rescue

Life Settlements, Viaticals, Stranger Owned Life all possess the potential to ruin the Life Insurance industry. As in companies ceasing to exist.

Agent

As with any industry there are just as many for artciles as against. I don't want to clog up the board with links to other articles that are pro LS, but you can find most of them at LISA | Welcome to the LIFE INSURANCE SETTLEMENT ASSOCIATION. The info you will find on this site is reputable, but will be found on sites without a pirates flag.

I've read the article that you posted and they skim over many of the small details that shows why a LS can be a viable option for many seniors. In the first example they talk about, they show a senior that can't afford his policy, so he does a LS to receive $500,000. They then explain that his kids are the big losers and that the senior should keep the policy in force for them. Explain to me how someone that can't afford a policy can keep it in force?

You listed a number of actions that will ruin the life insurance industry:
Viaticals: These transactions rarely take place. Most LS companies do not partake in them. Also many policies now have a clause in them that allows a policy holder that is terminal (2yrs or less) to receive around 94% of face, this is a much higher rate than a viatical settlement and a better option.
STOLI: This is a contriversal action in the LS industry. In the long run, STOLIs will be down away with, but LS will remain. STOLIs do serve a purpose, especially in the charitable donation arena. A senior can do a permium financed policy as a donation to his church. The church becomes the owner of the policy. The PF company pays all of the premiums for the contracted amount of time. At the end, the senior gave church a million dollars (or however much the policy is for) less the interest on the loan without paying anything out of pocket.

Life Insurance will change, the cause of this is from the change in the lapse rate. Right now, the overall lapse rate (all types of policies) is around 70%. Only paying on 30% of policies means a lot of profit for the insurance companies. When looking at convertible term, the lapse rate jumps into the 90s. LS gives this group (70% of policy owners) an option to recieve a fair market value for their asset. As a financial pro, explain to me the negative of being able to sell one of your assets? Or do you believe that life insurance is not an asset?

 

[lifesettlementadvisor]

Thank you....I checked their website and filled out a request. However, they're not in Ga yet. Should be interesting.

GA is a regulated state. You can check GDI website for a listed of licensed life settlement companies. I will also look around for a LS company that can do business in GA and handle small cases for you.

Remeber that regulations apply for the state that the client lives in and not the state that you live in.

 

[Agent]

I think your missing the point, you have people of the industry – advisors, actuaries, entire insurance companies arguing against this.

THERE IS NO INSURABLE INTEREST! in either of these transactions. (Which is against the law, curiously).

I was posting the article as an “informative read” [period], not as a source I would agree with entirely or agree with their web site decoration. So, the realty that it has a pirate flag on it is rather irrelevant.

What about the article from Senior Vice President and Chief Actuary at Massachusetts Mutual Life Insurance Company at the bottom of the page, any pirate flags there?

“ Explain to me how someone that can't afford a policy can keep it in force?”

There are ways to keep it in force or keep/get some in force. How about:

• Lowering the face amount to where it could be “affordable”
• Possible 1035 exchanges of other held fixed products to fund a policy
• Identify monies that are being used inefficiently that can be repositioned to fund the LI in place
  (and I'm not talking about dipping into their lifestyle monies)
• Taking the existing cash value to buy a paid up policy
• Reverse mortgage
• Refinance home
• Sell Home
• Rent out or sell any additional homes client may have
• Ask the children to help, as the policy is primarily going to benefit them
• Use some CV to assist with premiums
• Have dividends offset premiums
  
• Home Equity Loan to pay off the debt that is making the premiums not afordable etc....

Your missing the point, again with the Viatical mention. Structurally, these transactions function in the same way. And therefore are criticized equally, regardless of their regularity. To point out their infrequent use or the valid alternatives within current policy designs is to ignore their fundamental inappropriateness of their existence.

I agree with you that STOLI's will be done away with. The “fact” that it can benefit a party, in your example the insureds Church, does not validate the ethical merit of the transaction or the vehicle through which the transaction was carried out.

“Life Insurance will change, the cause of this is from the change in the lapse rate. Right now, the overall lapse rate (all types of policies) is around 70%. Only paying on 30% of policies means a lot of profit for the insurance companies.”

When quoting lapses do you restrict yourself to the market that you are in? What are the lapse Ratios within the narrow market of LS? Your including statistics of ALL lapses, which in turn would make a LS seem more desirable. If you look at who your marketing to and their probability of lapsing, and not having a desire to leave behind an estate shrinks dramatically. But I'll go with the above numbers to make a point.

It is a lot more profitable to have a policy stay in force then to have a lapse. Life Insurance companies price for the worse case scenario, with the expectation of unhealthy (likely to claim) policy holders keeping their policies in force. As was stated in another article “healthy lives tend to lapse and unhealthy lives tend to persist.” The 30% (not sure about these numbers, but I'll take your word for it) that the Insurance companies don't have to pay claims on does increase their profitability however, you must notice, that they took a loss as well. What about the forgone premiums and what they would have earned the company in various investments?

For example, I loan out money to four parties. If I loaned you a dollar (at interest), and you don't pay that dollar back, as I expected, I've lost that dollar and interest, but also what it could have meant for me in investments returns. On the other hand, if all 3 of the other parties pay as expected, I make out ahead on those transactions. All profits and all losses must be subtracted to get net profit (and of course overhead, liabilities etc.) They do do better if people keep their policies when you take into consideration how much future dollars the company has lost.

As for convertible term policies, why does it jump into the 90's and who is dropping it. Do you think the 60+ crowd is lapsing the 90% of convertible term policies out there? No, it's the healthy and usually financially stable under age 40 crowd. They think they will live forever, and want to buy a boat instead.

As a financial pro, explain to me the negative of being able to sell one of your assets? Or do you believe that life insurance is not an asset?

I do believe it is an asset. And this, for me, is really the most difficult question about whether LS should be outlawed. Upon reflection, I do believe the individual (perhaps this contradicts past statements I've made) has the right to sell the policy. However, does LI company, LS company, and the investors have a *right* to enter into said investment? An investment where the highest return comes the sooner the insured dies; not sure they have that right, do you?

I think it should be illegal to put a price on anyones head for an investment return which increases the sooner they die. And, it violates the law and thereby the definition of what life insurance must posses – an insurable interest.

The MM actuary has this interesting response to a question asked him.

What if the insured lives much longer than expected? Isn’t there a chance of doing better by taking the settlement offer?
“Skar: Yes, but it’s usually not a good chance. Peter Katt, a well-known insurance adviser in Michigan, addressed this question in the July 2002 issue of the Journal of Financial Planning. Using a discounted cash flow analysis, Katt estimated that the insured must survive to about twice life expectancy to make the life settlement financially superior to retaining the policy. Roughly 90 percent of the time, taking the life settlement results in a lower discounted cash flow than just keeping the policy. ”

I would bet the vast majority of LS were/are a financially bad decision long term toward the client/insured.

Agent (Sorry about the long post, but it beats a discussion on CRM's)

 

[jarmour]

So I shouldn't be allowed to sell MY life insurance policy? Life insurance is an asset and should be treated as such. Why should I sell my house or start a reverse mortgage for an asset that I can just as easily sell in the secondary market?

Regardless, life settlements won't be going away anytime soon

 

[Guest]

So I shouldn't be allowed to sell MY life insurance policy? Life insurance is an asset and should be treated as such. Why should I sell my house or start a reverse mortgage for an asset that I can just as easily sell in the secondary market?

Regardless, life settlements won't be going away anytime soon

I agree. I think people should do what is in their best interestes and not what is in the insurance industry's best interest.

If someone I don't know wants to take a policy out on me, I don't care... so long as he is prohibited from killing me to get the money! And if I can make a few bucks on it, what is the harm?

I fail to see the reasoning behind "insured interest."

If Apple can sell stock to anyone wanting to buy it (whether or not they like Macs or use them) it seems to me I should be able to sell an 'interest' in my life to anyone who wants to buy it.

Same with life settlements. If it is going to disrupt the insurance industry's profits because there will be fewer lapsed policies, then they need to fix that... maybe higher premiums or better CVs.

Some of you here (in this thread only) sound like mouthpieces for the insurance industry... not for the clients you serve.


Al(ice)

 

[lifesettlementadvisor]

jarmour does your company sell all of its policies on Lexnet?

 

[OneMorePolicy]

I think your missing the point, you have people of the industry – advisors, actuaries, entire insurance companies arguing against this.

THERE IS NO INSURABLE INTEREST! in either of these transactions. (Which is against the law, curiously).



I think it should be illegal to put a price on anyones head for an investment return which increases the sooner they die. And, it violates the law and thereby the definition of what life insurance must posses – an insurable interest.

From the rookie who just passed his state exam and is awaiting his state license #, thought that insurable interest only required when the policy starts, not required afterwards. Also, increasing return when one dies sooner, isn't that the incentive for a company offering annuities?

 

[lifesettlementadvisor]

.

From the rookie who just passed his state exam and is awaiting his state license #, thought that insurable interest only required when the policy starts, not required afterwards. Also, increasing return when one dies sooner, isn't that the incentive for a company offering annuities?

You are right, insurable interest is only needed to initially start a policy. Because of this, seniors have the option of selling the policy as soon as its been issued. These transactions are called wet settlements or tbi settlements. The value of a life settlement during the first two years and after the second year is extreme. You can usually get a bid of 1-5% during the contestable period, after the contestable period, this number jumps to 20-30%.

 

[OneMorePolicy]

A LS is not the same as a viatical. A viatical is for a terminally ill person, with a LE of 24 months or less. It is rare that you find someone who is doing viaticals. A life settlement is for a client that has an LE of 2-20 years................

If you have any other questions, let me know.

General question (and thanks for the info via email too, sure I'll be asking for additional help), what is the youngest age that a healthy person (male or female) could be given that the LE can be up to 20 years? Furthermore, in that same scenario involving the youngest age that could be entertained and assuming the 2-year contestability period has passed, typically what rough range of percentages would an investor pay for that policy?

 

[ThinkBig]

I think your missing the point, you have people of the industry – advisors, actuaries, entire insurance companies arguing against this.

THERE IS NO INSURABLE INTEREST! in either of these transactions. (Which is against the law, curiously).



I think it should be illegal to put a price on anyones head for an investment return which increases the sooner they die. And, it violates the law and thereby the definition of what life insurance must posses – an insurable interest.

From the rookie who just passed his state exam and is awaiting his state license #, thought that insurable interest only required when the policy starts, not required afterwards. Also, increasing return when one dies sooner, isn't that the incentive for a company offering annuities?

Pretty much, I'm a brand new rookie and I knew better, must not have quite got the definition of "Insurable Interest" either. Anyone can sell a policy on themselves, even if the policy is not in force yet, the instant another entity and you agree and that entity pays the cash, they have that illusive insurable interest (this was in my text book).

Great thread, another idea I might add, since my business focus is to help in retirement planning.