Life settlement (selling policy) quesiton

[somarco]

Once it is sold to a third party the insurable interest that the owner has on himself is gone

Insurable interest has nothing to do with who owns the policy. It is the beneficial interest that must be established with the issuing carrier at time of underwriting. Once the policy is issued the beneficiary can be changed to anyone, even Tony Soprano, and the carrier cannot do anything about it.

If I sell my own 100,000 term policy to you for $70,000 (the numbers I've seen most often show a 30% discount), you own the policy but what insurable interest do you have on me?

A 30% discount would indicate death is almost certain to happen any day now.

Generally the policies are sold at a 50% or much greater discount.

Insurable interest is no longer the issue but transfer for value rules do apply.

 

[somarco]

The life insurance lobbyists will crush the fledgling life settlement folks.

Many policies sold for investment purposes are sold to carriers. I see no reason why the life insurance industry will want to fight the life settlement industry.

 

[Winter_123]

Many policies sold for investment purposes are sold to carriers. I see no reason why the life insurance industry will want to fight the life settlement industry.

If a carrier buys the policies of a another carrier, in aggregate they cannabalize them and mess up their margins by keeping policies in force (resulting in payout) that would otherwise lapse. Soooo, they have to get in the game themselves in order to particpate in the plunder and offset their losses. I don't think there is any love between the life insurance industry and the life settlement industry even though the carriers may have to participate in the game to survive as long as it is legal.

Winter

 

[somarco]

Carriers mostly buy policies issued by their own company but they will also buy other carriers plans. AIG is a major player in that market.

The life settlement industry involves such a small number of policies that it is highly unlikely it will ever have any noticeable impact on loss ratio's.

 

[Winter_123]

The life settlement industry involves such a small number of policies that it is highly unlikely it will ever have any noticeable impact on loss ratio's.

That is only true if we assume that there will be no significant growth in the industry, yet the industry is growing and the life settlement folks have to gear up to deal with the opposition from carriers. Consider the comments below from a *life settlement* groups newsletter:

Winter

Now, in a faint echo of those times, a secondary market in life-insurance policies is growing rapidly in the United States.
However, the life-settlement business still has to overcome several In addition, some life insurers see the life-settlement business as a direct threat. Should the secondary market expand, the proportion of policies that lapse—and on which insurers pay no claims—would drop. Insurers would then have to pay more out. Their profits would fall and premiums would probably rise. So a handful of lifeinsurance firms are trying to hamper the life-settlement firms' growth by prohibiting their insurance agents from discussing them with clients and by making policies nontransferable.

 

[lifesettlementadvisor]

A 30% discount would indicate death is almost certain to happen any day now.

Generally the policies are sold at a 50% or much greater discount.

A life settlement is generally for 20-60% of the face value. This is all dependent on the LE of the client and the premiums. The funders are looking for a ROI of 9-13%

 

[lifesettlementadvisor]

Carriers mostly buy policies issued by their own company but they will also buy other carriers plans. AIG is a major player in that market.

The life settlement industry involves such a small number of policies that it is highly unlikely it will ever have any noticeable impact on loss ratio's.

AIG owns a piece of Coventry. They have gotten into some trouble lately for unethical actions. While Coventry has a heavy influence from AIG, they will buy a policy from any carrier. Peachtree is also partially owned by a carrier. Remeber before working with a company, find out if they are a private funder or broker.

The life settlement industry is growing rapidly. Three years ago 5 billion worth of policies were settled on, the next year it grew to 12 billion. Last year it grew to 23 billion and it is projected that there will be 150 billion worth of settlements done in 2007

 

[Winter_123]

AIG owns a piece of Coventry. They have gotten into some trouble lately for unethical actions. While Coventry has a heavy influence from AIG, they will buy a policy from any carrier. Peachtree is also partially owned by a carrier. Remeber before working with a company, find out if they are a private funder or broker.

Which one is Coventry. A private funder? How do the brokers work it? The shop it around to the private funders or what. How does all that work.

Winter

 

[lifesettlementadvisor]

Which one is Coventry. A private funder? How do the brokers work it? The shop it around to the private funders or what. How does all that work.

Winter

Yes Coventry is a private funder. Private funders have investers (both individuals and corporations) that put the money up to buy policies. These private funders want to get each policy for the smallest settlement possible to gain the largest profit in the end. Brokers work with a network of funders. The bigger brokres do not work with individual investors, but large financial institutions and hedge funds. A broker will shop each policy out and get the largest settlement possible. The broker makes a percentage of the settlement, so the more they can get a client, the more they make.

 

[joeblow]

Not being a 'life pro' I've always wondered about the 'insurable interest' laws. What is the rationale for these? Is it because it just sounds sleazy for someone to take a life policy out on their best friend (or maybe worst enemy) and benefit from his/her death? Are these laws based on not giving someone an incentive to take out the policy on someone and then taking 'a contract' on the person via Tony Sopranno? Are these laws an anit-crime thing?

How do the life-settlement companies (Wentworth, etc.) (plan to) get around these laws?

Al, in a nutshell:
The concept of life insurance as property, capable of being transferred for value, was established via U.S. Supreme Court Grigsby v. Russell, 222 U.S. 149 (1911) .

GRIGSBY V. RUSSELL, 222 U. S. 149 (1911) -- US Supreme Court Cases from Justia & Oyez

Justice Oliver Wendell Holmes outlined the case as follows:
"The material facts are that after he had paid two premiums and a third was overdue, Burchard, being in want and needing money for a surgical operation, asked Dr. Grigsby to buy the policy, and sold it to him in consideration of $100 and Grigsby's undertaking to pay the premiums due or to become due; and that Grigsby had no interest in the life of the assured."
Importantly, the Court went on to Order that
"…life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property."
Thus was enshrined the principle that a life insurance policy, for due consideration, may be sold by the owner to a third-party having no "insurable interest" in the life of the insured.