10 reasons to expect a boom in life settlements in 2014

Now that 42 of the 50 states, covering over 90 percent of the U.S. population, have enacted legislation to orderly regulate life settlements, the foundation has been laid for the industry to thrive. But will it? Like any business, the bottom line comes down to the law of supply and demand. These two cornerstones of economics are lining up heavily in favor of the life settlement industry.

The Supply Side

1. ATRA (the American Taxpayer Relief Act) has wholly eliminated federal estate taxes for almost everyone. The few remaining individuals subject to that tax (estimated at roughly one-tenth of one percent of the population annually) will see substantial decreases in their estate tax liability. As a result, many policies owned on the lives of seniors for estate tax liquidity purposes are no longer needed. While some will choose to continue their coverage, many will undoubtedly take advantage of the change in estate taxes to free themselves of the burden of paying premiums on policies they may no longer need.
2. Except for policies with secondary guarantees, universal life insurance is often purchased using premium levels that would carry the policy based on crediting rate assumptions that prevailed at the time of purchase. The current period of low interest rates means unexpected and often unaffordable premium increases for policies that were bought based on the higher crediting rate assumptions of the past. As those higher premium notices are received by policy owners, many will allow their policies to lapse or decrease their coverage. A life settlement can provide a very attractive alternative.
3. The oldest baby boomers are now reaching age 68 and there are tens of millions to follow.  Many are retiring and no longer need all of their coverage which may have been bought to replace earnings or for business planning needs.  Concurrently, they are reaching the ages which are most attractive to life settlement investors.
4. The downside to increasing longevity is the growing need for long term care.  Not just baby boomers, but their parents as well, are faced with the challenge of maintaining their income for longer periods of retirement and the burden of increasing costs for medical and custodial care.  Maximizing the living value of their life insurance through a life settlement can provide badly-needed funds for these needs.
5. Consumers are becoming increasingly aware of the life settlement option.  Already adopted in various forms in six states, the NCOIL (National Conference of Insurance Legislators) Model Disclosure Act requires insurance companies to notify senior policy owners with policies about to be lapsed or surrendered that alternatives like a life settlement exist.  Medicaid life settlement laws, like the one already enacted in Texas and proposed in a number of other states, require that consumers applying for Medicaid be made aware of life settlements as an alternative option to surrendering their policy to offset long term care expenses. The growing awareness of life settlements will mean more consumers will possess the knowledge that their policies may be worth considerably more than the insurance company will pay upon surrender and this means more policies will come to market.