Traditionally, the life settlement market has been concerned with life insurance policies with larger face values - typically, of $1 million and above. This has been due to simple economics: the return for investors is greater on high-face value policies. The market for large policies, and even jumbo policies of $10 million-$100 million, is stronger than we’ve seen in the last decade. It’s a seller’s market and the demand for eligible policies far exceeds the supply.
Institutional investors are now looking to supplement their portfolio demands with smaller face policies of $50,000-$500,000 and making strong offers.
The market is expanding.
Until recently, the life settlement market was seen as something of a fringe market for investors. It wasn’t (and still isn’t) widely understood among investors and financial advisors, nor is it well known among consumers.
Because of this, the market remained somewhat small for many years. As more investors became aware of the higher-than-average returns on these alternative investments, however, more money started coming in and increasing the demand for life settlements.
This, in turn, led to financial regulators paying more attention to the life settlement market. What started out in the 1980’s as a fairly unregulated market is now much more regulated, with legal statutes governing the industry in all but seven states. (Ashar is compliant with all state regulations governing life settlements, and licensed in all but three states.)
And the cycle continues: as the market grows, more institutional investors start putting their money there, which grows the market and attracts more investors.
The life settlement transaction process has become more efficient.
According to an article on InsuranceNews.net, the development of technology has also had a hand in leading investors toward policies with smaller face values. This - plus the fact that brokers and providers have both developed more efficient processes for life settlements - has made it easier for investors to acquire policies more quickly.
Because of this, institutional investors have not had to go after large policies exclusively. Instead, they’ve been able to aggregate smaller policies into their portfolios.
Likewise, as the amount of capital flowing into the Secondary Market has increased, life settlement providers have been able to expand their ability to facilitate life settlement transactions for smaller policies.
There’s more competition in the market.
Naturally, more investors means there’s more competition for life settlements. This is great news for the sellers, as it drives up prices - working through their financial advisor and a life settlement provider like Ashar, sellers can expect to sell their policies for many times the cash surrender value.
This also means that investors have to look beyond the typical $1 million-plus policy if they want to find deals - hence, the greater interest in $100,000 and $250,000 life insurance policies.
What does this mean for the Secondary Market for life insurance policies?
Industry experts have been predicting continued growth for the life settlement market, fueled in part by these smaller policy transactions. With more policies being considered for settlements, not to mention continued low interest rates, these predictions seem likely to bear fruit.
In addition, the market is getting a boost from the number of seniors who are finding themselves in need of long-term care. As more and more baby boomers are aging, life settlements are becoming a very attractive and practical method of obtaining the necessary funds to pay for a nursing home, assisted living, or home nursing.
Financial advisors who serve senior clients may want to learn more about this method of generating liquidity so they can serve their clients to the very best of their abilities. If a client is considering lapsing a life insurance policy, there’s a chance that they may be leaving a good deal of money on the table.
To learn more about life settlements and how a life settlement broker can get your client the best possible price, read our blog post Why Financial Advisors Owe it to Their Clients to Go Through a Life Settlement Broker.