7 positive trends for life settlements
Thanks to the demise of STOLI and new estate tax laws, the future looks bright
for the life settlement industry.
By Robin S. Weinberger, CLU, ChFC, CLTC and Peter N. Katz, J.D., CLU, ChFC
The life settlement industry has seen its share of turmoil
in the past few years. But
growing pains are part of
any new evolving industry.
Here are seven reasons the
future of the life settlement
industry looks bright.
Higher-quality life expectancy
Another factor that
shook up the industry
in 2008 was the sudden change in mortality
tables used by two of
the major life expectancy companies, which
increased life expectancies by some 25 to 30
percent. Although the
immediate fallout from
these changes was the
stifling of business, life
expectancies that more
closely resemble insurance company underwriting can only add to
investor confidence over the long term.
Additionally, life expectancy companies,
now having had many more years of experience in underwriting life expectancies
for life settlements, have much more data
upon which to base their estimates.
No more “Wild, Wild
Forty-two of the 50
states now regulate life
more than 90 percent of
the United States’ population. This is good for both
investors and consumers,
who are now able to transact business in a more orderly, regulated
marketplace. These laws provide rules
and conduct standards for the industry
and add significant protection for the
participants in a life settlement transaction.
The return of investment capital
The financial crisis that began in 2008
landed a one-two punch on the life settlement industry.
First, investment capital dried up globally. For life settlements, this meant almost
no money for new investment, and it severely hampered lending for premium payments to existing portfolios.
Second, life settlements are often tout-
ed as investments that are not correlated
to the stock and bond markets and thus
provide diversification to investors. But
during the financial crisis, investors be-
came concerned about the solvency and
claims-paying ability of the insurers that
issued the policies they were buying.
The demise of stranger-
originated life insurance (STOLI)
Life settlements were intended to bring
added value for a policy that was about to
be lapsed or surrendered. But by the early
2000s, it became clear that there was a significant difference between the mortality tables that insurers used to price policies and
the life expectancy reports that were used
by the life settlement industry.
Life expectancies used by life settlement investors were generally considerably
shorter than those of the insurance compa-