For the life settlement investor, buying a life settlement solution is not the same across the board. In fact, there are many variations on the life settlements agreement theme, some of which are best avoided. What used to be a traditional market has, since 2004, morphed into a plethora of choices for the investor, requiring many investors to take a refresher course in life settlements.
Before 2004, all of the life settlements market was made up of traditional life settlement arrangements; policies that matured and have existed beyond the two-year contestability period for a life settlement agreement. Now hybrids are driving more sellers into the market andcreating a more complex market. Some of the newer life settlement solutions are:
Premium Financed Life Settlements. These are life insurance policies issued using non-recourse (or hybrid) financing for premium payments during the contestability period. Designed exclusively for sale in the life settlements market, these life settlement agreements are now the dominant life settlement solution in the market. Targeting seniors who may need the extra cash, these life settlement deals offer the policy holder two years of risk-free, premium-free coverage in exchange for a profit on the policy's future sale. Typically, these life insurance policies have less value than the traditional life settlement agreements and may carry interest tax penalties.
Investor Owned Traditional Life Settlements. Institutional investors purchased these policies under the direction of life settlement brokers or providers. Because most investors were supplied with inaccurate life expectancy data for these life settlements, most of these life settlement solutions hold little value.
Investor Owned Premium Financed Life Settlements. With this type of life settlement, the investors provide premium financing for the underlying policies. Like the investor owned traditional life settlements, life expectancy rates with these can also be inaccurate, so the buyer market for these life settlement solutions is dwindling. Thanks to the inaccuracies, many of these policies are worth much less than originally expected and as new projected policy values are calculated, lenders have been forced to foreclose, thus causing buyers to lose their original investments.
Investor and Stranger Owned Life Settlements (STOLI). These life settlement arrangements have done significant damage to the life settlements market and have generated a negative image of life settlements solutions. Blatantly structured for resale, the STOLI products have been the cause of numerous litigious activity. Despite being billed as transparent transactions, most were purchased during the policy's contestability period and were bought and controlled as irrevocable living trusts. Some buyers have even attempted to market such arrangements as traditional life settlements.
Because we specialize in life settlements, we at Opulen Capital can help investors and sellers determine the best life settlement solution for their particular needs. Before investing or selling, ask. One of our life settlement specialists will walk you through the options available to you and help you choose a life settlement solution that fits.
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