Before life settlements investments
Terminating an insurance policy or surrendering it for cash value or bringing down the premium payments, or exchanging it for a different policy. These were the long-established methods to shed an unwanted policy. But not anymore. Life settlements investments have made it possible to liquidate the insurance policy for what was once considered an illiquid asset.
Life settlements have become a dominating secondary market to the life insurance policies ever since an AIDS patient attempted to cash out his life insurance policy to fund his treatment.
Present-day Scenario of life settlements investments
The life settlement industry continues to grow sustainably, reaching a whopping $160 billion within the next two decades. This massive growth is the consequence of increased acknowledgement of life settlements as an investment asset class and increasing life expectancy of the retirement age population.
This framework encouraged investors to pour into this secondary market for the life insurance policies, thus forming a young tertiary market for the insurance policies called life settlement investments (secondary to life settlements).
Life settlement investments are a reliant investment tool for investors due to increased liquidity and attracting investors to cash better policyholders.
This unfolding of the tertiary market and life settlement investments invites an immense range of investors, now viewed as open-ended investments.
Increased liquidity and turnover in the life settlements investments market and polished practices give a healthy environment to the life settlements to evolve as an investment industry.
The American Insurance Group (AIG) is known to become the first company to securitize a massive number of life settlement policies in 2009.
Today the major players of the life settlement investments industry are high net worth investors and large banks.
What caught the attention of the investors?
Investors are fascinated by life settlement investments because of diverse investment strategies.
- The passage of time: Time is one of the significant rationales to invest in the life settlements industry. The estimated cash flows of a life settlement investment are based on the probability of death of the policyholder population. The chances are calculated using specific data for each insured, with one of the most important being aged. As the policyholder ages, and the net present value (“NPV”) for the policy will increase. Consequently, when the insured population within a collection of policies gets older, the policy’s value increases. These death benefits are viewed as income in the life settlement industry and will further increase the liquid value of the life settlement investment.
- Uncorrelated Returns: Another strong rationale attracting the investors in the life settlements investment market is the economic independence of the life settlement returns. The traditional financial market factors such as changes in interest rates, inflation, and economic growth do not impact the life expectancy or the mortality events of the individual policyholders. Therefore, life settlements should be uncorrelated with the rest of the institutional investor’s portfolio.
- Ultimate Assurance: The budding tertiary market for life insurance policies brought along with it the world’s largest insurance companies as significant players backing the returns from the life settlement investments. It equally increased the trustworthiness and credibility of the life settlements investments.
- Regulatory Structure and Attractive Yields: In recent years, the life settlement industry has been regulated and polished and consequently proved to gives its investors promised attractive returns.