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A life settlement is the sale of a
life insurance policy that is owned by a senior citizen, age 65+, or a person with a life expectancy of 15 years or less, for a lump-sum of cash today that is greater than the cash surrender value of the policy, but less than the death benefit of the policy. Christian Stanley makes markets, both domestically and internationally, with over 20 institutional funders that provide seniors with lump-sum cash payments in exchange for life insurance policies that are no longer needed or wanted.
The funding institution is the final purchaser of the senior citizen’s life insurance policy and continues to pay policy premiums until maturity. By creating a competitive auction market, the
Christian Stanley is able to consistently earn seniors, on average, 4-times the cash surrender value offered by the insurance carrier. Why are purchasers willing to offer more than the cash value of a life insurance policy?
The cash surrender value of a life policy does not reflect the true economic value of the asset in a competitive market environment because it is simply the lowest value, or floor value, of the life insurance policy. Allowing parties external to the origination of the policy to submit a bid is necessary if one is to earn the fair market value of the life insurance policy.
Major factors affecting the size of a Life Settlement offer:
Age and health of insured
Type of policy and cost of coverage
State of residency
INTRODUCTION
What are the Fundamentals of the Life Settlements Industry?
Alife settlement is simply the sale of a life insurance policy that is owned by a senior citizen, age 65 and older (or a person with a life expectancy of 15 years or less), for a lump-sum of cash today that is greater than the cash surrender value of the policy, but less than the face amount of the policy.
Example
Suppose that a prospect, Mr. Smith age 75, owns a $500,000 life insurance policy with annual premiums of $25,000 and he is unable to pay the premiums. Consultants with Christian Stanley will recommend a life settlement transaction to Mr. Smith, which in this hypothetical case will offer him $100,000 today as opposed to $0, in the case of a term life policy, or a small cash value, in the event the policy lapses.
Understanding that he can no longer afford the policy, Mr. Smith opts to enter into a life settlement and receive $100,000, rather than just letting the policy lapse. On cases such as this, Consultants with Christian Stanley earn consulting fee of approximately $10,000.
A Flexible Tool
Life settlements can meet the needs of very diverse clients. Take, for example, a widow in her early 80's who no longer needed multiple life insurance policies with increasing annual premiums. She owned a $3 million universal policy with a cash value of $69,000 and annual premiums of $68,000. Through a life settlement, she received $500,000 for the policy and eliminated the $68,000 annual premium. She reinvested the $500,000 in a single-premium annuity and used the money she would have spent on the premiums to make $10,000 individual gifts to all five of her grandchildren and great-grandchildren.
Business Applications
For instance, a company owned a $2 million key-man policy on its president who had recently retired. The policy was a convertible 20-year-level premium term policy that had no cash value at the time of retirement. Annual premiums totaled $60,000. Instead of letting the policy lapse, the company sold it for $250,000. Insurance and planning professionals have a unique and powerful opportunity to realize the benefits this industry has to offer. Because life settlements have become more regulated and monitored, professionals can confidently offer life settlements as a financial planning tool to their clients. They can also be on the cutting-edge of an industry that has already seen substantial growth and rewards nationwide.
RECENT CHANGES
Over the past fifteen years, there has developed a pool of senior citizens aged 65 and older who have maintained normal health conditions as a result of advances in medical technology, prescription drug availability, and the ubiquitous higher average standard of living in the United States. Seniors are now living longer in conjunction with the effect of the baby boomer generation on population demographics forms the crux of the life settlement opportunity.
Specifically, the Population Reference Bureau (“PRB”) 2002 World Population Report states that there were 287,400,000 individuals living in the United States in 2002. As a result of declining birth rates and increasing longevity, the percentage of those 65 years or older in the US has risen to 12.6 percent or 36.2 million people today. With the aging of the baby boomers, the 65 and older demographic is the fastest growing segment of the population. According to PRB, it is estimated that 20 percent of Americans will be over the age of 65 by 2030. This growing demographic provides the foundation of our customer base as life settlements professionals at Christian Stanley.
Advanced Perspectives
The life settlements market is referred to as the secondary market for life insurance policies. Life insurance is private property. Like a car, house, stocks, and bonds, it can be sold in accordance with applicable law. Our industry has the exploded from only $50 million (US) in 1990 to over $4 billion (US) in annual transactional volume in 2002. The Wharton School of Business projects that our industry will reach $15 billion in annual transactions by 2006. What has catalyzed this unprecedented growth? For a moment, imagine a world where several buyers stand ready and willing to purchase your car at substantially more than its trade-in value, and you get to choose the highest bid. Such a world now exists for owners of life insurance policies that are no longer needed, no longer affordable, or no longer serve their original purpose.
Christian Stanley maintains strong buy-side institutional funding relationships with over 20 funders. On a daily basis, we monitor the pulse of the secondary market and have sophisticated underwriting, medical processing, and capital market relationships that ensure both timely execution and fair market pricing. Our relationships with institutional funding groups enable us to bargain on clients’ behalf and maximize transactional profits.
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