When you have a whole bunch of articles dealing with a single topic as we did in the Feb. 7 issue on Life Settlements, it tends to open up new perspectives on the subject. This is particularly true when that subject is an emerging area in the business, which life settlements (or senior settlements, as they are also known) most definitely are.
This business of a policyholder selling a life policy to get immediate cash has come a long way from its beginnings in the 1980s when it started as a way for policyholders who had AIDS to get cash they needed when they needed it most.
Then the business was called viatical settlements and, truth to tell, there was something a bit gruesome and offputting about it because it seemed as if individual investors were speculating on how long an AIDS victim would live and how much larger the investors payback might be if the victim died before he or she was expected to.
With the advances in treatment for AIDS, the viatical market has gotten a lot smaller (not that it was ever that huge to begin with). Additionally, the business started to invite regulation by the states.
What it took to get to the present state of the life settlement business were some clear-thinking entrepreneur types who recognized that the essential ideagiving policyholders who no longer wanted or needed to keep their policies in force the option to trade them for cashwas sound but needed a new market.
When these entrepreneurs realized that the senior market was a big one that fit the bill in so many particulars (many big policies in force, need for the money, etc.), the idea started to take off and the business has been growing by leaps and bounds ever since.
When you boil it down, what these folksthe buying companiesdid is they went where the money is.
Now, whats really interesting is that more and more advisors and agents are coming to the same realization as the purchasers. I was particularly impressed with the experience Michael Rodman, a financial planner and president of Advanced Planning Services, San Diego, Calif., related to NU Senior Editor Warren Hersch.
Here is what Warren wrote in the Feb. 7 issue:
“After hearing a lecture on life settlements, Michael Rodman decided to put what he had learned to the test. So, he requested bids on a 10-year level-term policy that its owner, a 75-year-old client, was otherwise prepared to exchange for a new 10-year term contract.
Rodman got more than he bargained for. Within two weeks, one offer came back for $960,000. A second institutional funder raised the offer to $1.2 million. By the time the bidding was over, Rodman had nabbed $2.8 million for his client.”
Is it any wonder that after this, Rodman said, “This extraordinary experience really opened my eyes. Ive since made life settlements an integral part of my practice.”
I can imagine that many of NUs agent readers who may have only just heard about life settlements were intrigued, to say the least, after reading about Rodmans experience and might be considering learning more. There is plenty of information around and more is becoming available every day.
Its important to note that life settlements may not be the answer in every situation and that agents have a fiduciary duty to clients when they undertake a transaction.
But in those cases where a life settlement is appropriate it sure looks like it has the potential to be a win-win-win situation for the policy owner, the agent and the purchaser. And how many of those do you come across in a days business?
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 11, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.