Life settlements have allowed for the creation of a “market value” that can help consumers make use of the life insurance assets, according to a financial advisor speaking at the Life Insurance Settlement Association’s annual fall conference here.
Barry Kaye, founder of the advisor firm Barry Kaye Associates, said life settlements “allow life insurance to grow up and become a true asset” by creating a place for an actual market value of policies to be established.
By freeing policies from cash values set by insurance companies issuing the policies, he said the secondary market has given “new asset value” to life insurance that can apply in other financial services sectors as well.
“Banks should now assess market value instead of cash value,” he said, adding that doing so would create a greater source of collateral for seniors looking to borrow against their policies.
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As an example, Kaye said a policy that he and his wife owned with a cash value of $167,000 was sold on the secondary market for $3.1 million. “For collateral purposes,” he asked, “was that policy worth $167,000 to the bank?”
The emergence and ongoing growth of life settlements and the secondary life market is an important development in the ongoing evolution of life insurance products, Kaye said, and he argued that while regulators should work to ensure that the process is transparent, they should not do so by eliminating consumer choices.
One of the arguments against life settlements, he noted, is that consumers are generally better served by keeping their policies. “If it’s good for the investor, it should be good for the client,” he said. “However, that’s up to the client.” Whether or not to sell an existing policy, he added, is not for an agent to decide “or for the secondary market to decide.”