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April 22, 2021 at 09:36 AM
What You Need to Know
- Some policyholders who were ready to sell have decided to wait.
- The easing of the pandemic could bring a wave of consumer-owned policies to market.
- Businesses seeking capital may bring another wave of policies to market.
The pandemic has had a substantial impact on just about every business enterprise. Some positively, like cleaning and sanitizing supplies, personal protective equipment and toilet paper, while others have been quite negatively hit like travel, entertainment and restaurants.
The life settlement industry has been impacted from the pandemic as well. Many people that were ready to sell their policy prior to the pandemic have decided to wait, just in case they became ill. Investors, however, continued seeking policies to buy, creating a sellers’ market due to the demand exceeding the limited supply of policies. This has driven up the prices for policies on the life settlement market.
But that pricing phenomenon is likely to change in the not-too-distant future as a wave of policies is primed to hit the market.
First, as more people become fully vaccinated and the virus threat diminishes, policies that had been withheld from the marketplace are likely to be submitted.
Second, the economic fallout from the pandemic means that many businesses may have to fold or at least seek a capital infusion. For businesses that fail, any number of policies bought for business or estate liquidity purposes may no longer be needed or affordable. Additionally, for a struggling business, a life settlement could be used to provide a cash injection required to save it. In other words, the economic impact on businesses will likely bring more policies to the life settlement market.
Over time, the market could become quite flush with policies and life settlement prices would likely fall. Clients are walking a tightrope between selling their policies too early if they die soon, or not getting the highest price for their policy if they wait too long to sell.
