People often forget that a life insurance policy is an asset the same way real estate or investment portfolios are assets. The surrender value of a policy only represents a small portion of what it may actually be worth. There is a secondary market available to help you identify the true value of your life insurance policy. For qualified candidates holding Universal, Whole Life, Term Life and even group insurance the secondary market can help policyholders recognize substantial value for their unneeded or under performing policies.
Through a life settlement transaction the sale of an existing policy can be made to a third party in exchange for a lump sum greater than the cash surrender value. The life settlement marketplace evolved from the viatical marketplace of the late 1980s where insureds with a life expectancy of less than two years sold their policies for cash to help pay their medical bills. Since then the marketplace has grown and evolved to accommodate insureds with life expectancies approaching 20 years. The secondary market is now fueled by institutional investors looking to diversify portfolios by investing in this non-correlated asset class. Hedge funds, pension funds and mutual funds are driving the growth and development of the market.
There are various reasons why an individual or business would want to sell a current life insurance policy:
A Wharton School study found that on average a seller can realize 3.6 times the cash surrender value by entering into a life settlement.
Traditionally, policy owners had few options when it came to addressing these situations. As a result, policies lapsed or the client relied solely on the carrier to determine the value of the policy. Financial markets have created an opportunity to set a true, fair market value on these policies/assets. The advantage to your client can be a significant increase in value over surrendering the policy to the insurance carrier.
Stimulated by institutional money, investors are looking to diversify their asset portfolios and are now seeking to purchase life insurance policies in large quantities. Since these new assets are not tied to any traditional economic factors, investors deploy significant amounts of capital to this dynamic market.