Just 20 years ago, the life settlement industry was seen as more of a fringe investment class than anything else.
There was little discipline, very few regulations, and many people - even investors and brokers themselves - were unsure of the best way to go about selling or purchasing this type of asset.
Today, however, the picture is very different. The life settlement industry has caught up with other financial industries in terms of regulation and compliance. Reputable life settlement brokers - like Ashar - hold licenses and must operate under strict regulations just like insurance professionals and financial advisors.
These developments have helped bring the life settlement industry into the mainstream for alternative investments.
So why have life settlements become such an attractive investment?
A Growing Alternative Asset Class
According to an article in LifeHealthPro, it’s the fact that the industry is maturing. When the life settlement industry started, it was more of a cottage industry - not many people were involved, and the rules and regulations around it were unclear.
Over the past 20 years or so, the industry has changed dramatically. As more investors began to be interested in this alternative investment, a system of regulations has emerged that protects sellers as well as buyers.
At the same time, a network of licensed professionals operating under a strong system of ethics has emerged to represent parties on both sides of the table. For the buyers - institutional investors - that representative is a life settlement provider.
Providers owe a fiduciary duty exclusively to the buyers they represent. This means their objective is to purchase a seller’s policy for the lowest possible price.
A broker, on the other hand, represents the policy seller. The broker’s job is to shop the policy around the market to get the best possible price for the seller.
Going through a life settlement transaction without a broker can be a foolhardy proposition - it’s a near-certainty that you won’t get the best possible price for your client. In some cases, Ashar has been able to gain a price 800 percent higher than the original price offered by a provider.
These formal protections have successfully convinced investors that life settlements are a smart asset to invest in - especially as the country’s population continues to age, and baby boomers are finding themselves with life insurance policies they can no longer afford.
Greater Understanding of Value to Policyholders
As the life settlement industry has matured, so too has the understanding of how life settlements can bring value to the policyholders who sell them. Originally, the only option for a policyholder who wanted to dump his or her life insurance policy was to surrender it back to the life insurance company.
While this is, and has been, standard policy for the life insurance industry for decades, it would hardly be thought of as normal for other assets.
Take a parcel of land, for example. What if you could no longer afford the taxes or no longer wanted to hang on to the land? If real estate were treated the same way as life insurance policies, all you’d be able to do is sell it back to the original person who sold it to you. Worse yet, what if you had to sell it at a price that the original seller determined?
There’s no way this would be tolerated in any other financial industry. That’s why a safe, transparent, well-regulated life settlement industry can be of huge benefit to people who hold life insurance policies that have either become too expensive or are simply no longer necessary.
By going through a reputable life settlement broker, sellers are able to liquidate an asset that, often, they didn’t know they had access to. The resulting lump sum can be used to pay for long-term care, beef up a retirement account, or help pay for medical expenses, for example. There are no strings attached, so the seller can use the money for whatever he or she wishes.
The knowledge of this great consumer benefit, coupled with greater regulation, tighter controls, and increased awareness of the life settlement industry in general, has made this sort of investment attractive to ethical institutional investors.
If you’d like to find out more about this underutilized option for your clients, take a look at our resources for financial advisors.