When did you first become familiar with the life settlement market? Months ago? Years? Decades?
If it’s the latter, you’re in rare company. Many financial advisors today still feel that they’re on unfamiliar ground when it comes to talking about life settlements with their senior clients. There are a couple of reasons for this.
For one thing, life settlements have only become a popular option for healthy seniors in the past several years. For another, the industry is often misunderstood, characterized as a “Wild West” scenario in which regulation is lax and transparency is hard to guarantee.
While this characterization held some truth in past decades, today it’s a real misrepresentation of the life settlement industry. Life settlement brokers, like Ashar, are held to strict standards and life settlement transactions are regulated in almost all 50 states.
Our company believes wholeheartedly in the importance of a strongly regulated life settlement industry, which is why we hold ourselves to such strict compliance standards.
So how have these misconceptions taken such hold? Where did they come from? To explain, here’s a brief history of the life settlement industry.
It all started back in 1911...
Although many in the financial services industry have become familiar with life settlements only recently, the history behind this alternative wealth management strategy is a relatively long one.
The origins of the industry date to a specific Supreme Court case, Grigsby vs. Russell, from 1911. The court case established that life insurance was personal property and as such, could be transferred from one individual to another.
This established the legal precedent for life settlements. This precedent has been upheld several times since that original case, including in the 1996 passage of the Health Insurance Portability and Accountability Act in 1996. This law, in addition to establishing medical privacy standards, explicitly allows a life insurance policyholder or beneficiary to transfer ownership to a third party.
The life settlement industry emerges
Despite the fact that the legal precedent for life settlements was established more than 100 years ago, the life settlement industry really only emerged in the 1980s.
The circumstances surrounding the industry’s beginnings were tragic: in the wake of the AIDS crisis, thousands of insured AIDS patients were suddenly faced with dramatically shorter life expectancies, which often meant that they no longer needed their life insurance policies.
This, combined with the soaring medical bills they had to deal with, helped give rise to the viatical settlement industry. It’s out of this activity that the life settlement industry grew.
Viatical settlements operate similarly to life settlements, with a policy owner selling his or her policy to a third party. That third party becomes responsible for paying the premiums and collects the death benefit when the original owner passes away.
The difference, however, is that viatical settlements are reserved only for chronically or terminally ill patients. Life settlements, on the other hand, can be entered into by anyone over the age of 65 who has a policy that qualifies.
The life settlement industry matures
Today, the life settlement industry is a thriving, regulated market that allows seniors to liquidate an often-overlooked asset.
A life settlement, which results in the original policyholder receiving a lump sum in payment, can help ease financial stress for Baby Boomers who are struggling with the incredibly high costs of long-term care, medical bills, or a dwindling retirement fund.
In fact, a 2009 study by the U.S. Senate Special Committee on Aging found that on average, a life settlement yields 8 times more money than the policy’s cash value.
When financial advisors partner with a licensed life settlement broker, like Ashar Group, the financial results for clients can be excellent. Beware of institutional investors that try to disintermediate the planning community by advertising client direct. These providers have a fiduciary duty to the institutional funds purchasing policies. No matter what they tell you, investors can’t serve two masters. They have a fiduciary duty to get the best return for the fund and they cannot give you the best offer.
Ashar life settlement brokers, however, have a fiduciary duty to the policy owner and don’t purchase any policies or have any ownership stake in businesses that do purchase policies. Ashar creates a competitive bidding auction evironment for your client’s policy that results in a much higher price than you would receive without a broker. We know the industry and the investors, and we pride ourselves on putting that knowledge to work for you and your client.
To get an idea of whether your client’s policy might qualify for a life settlement, take our quick, 7-question quiz.