Life Settlements

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Sep 9, 2008 3:38 pm

I had lunch recently with a friend, and a friend of his who is a life settlements salesman.  LPL will not allow us to sell life settlements (we can help a client sell their insurance policy to a life settlement company, but we can't put an investor into life settlements). 

 
The pitch sounds pretty good, and I wasn't able to poke many holes into it (if any).  The scary thing is that the guy didn't even have an insurance license, and obviously no securities licenses of any kind). He only had an "appointment" from the life settlement company.
 
One of my main questions was how many people live past their expected death date?  He told me that since they (Life Partners out of Waco, TX) have been doing this, only one person has outlived the planned premium stage, where they had to go back to the investors to get more premium.
 
He was also using 14 to 15% as target returns (annualized).  I'm not going to put any money with this guy, but my friend wants to. So, any experience with this stuff good or bad would be appreciated.
Sep 9, 2008 8:11 pm

From whose perspective is this question being asked? 


In general, I think that any stranger owned life insurance is ultimately a bad thing.
Sep 9, 2008 8:15 pm
anonymous:

From whose perspective is this question being asked? 


In general, I think that any stranger owned life insurance is ultimately a bad thing.
 
Seems like a murder mystery on Dateline waiting to happen.
Sep 9, 2008 9:22 pm

When you tell your client who has entered into a life settlement, that a third party has financial incentive to see them die as early as possible, tell us how they react.

Sep 9, 2008 11:12 pm
snaggletooth:
anonymous:

From whose perspective is this question being asked? 

In general, I think that any stranger owned life insurance is ultimately a bad thing.
 
Seems like a murder mystery on Dateline waiting to happen.



My thoughts exactly...anyone that does even a tiny bit of LI as part of their practice should be vehemently opposed to this.

Sep 10, 2008 6:14 am

anyone that does even a tiny bit of LI as part of their practice should be vehemently opposed to this.


I 100% agree!  A life settlement, in some circumstances, can be in the best interest of an individual (if they don't mind someone having a financial incentive in their death).  A life settlement can be a good investor for the purchaser.  However, if one looks at the bigger picture, life settlements are a negative for EVERY single future life insurance purchaser.


This is for two major reasons.  The life settlement industry messes with insurable interest.  This greatly increases the chances of life insurance being taxed differently than it is today.  Secondly, life settlements hurt the lapse ratios of life insurance companies.  Lower than expected lapse ratios increases the expenses of the insurance companies by increasing the amount of death claims.   The end result of this would need to be increased insurance costs for everyone. 
 
 (As a real example, look at long term care insurance.  Probably the major factor in price increases over the last few years has been the insurance company having lapse ratios that have been much lower than expected.)
 
There's also just the public policy/moral issue of whether it is ok to invest in the death of a stranger.