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Indications of Capital Returning to Life Settlements Market


HARTFORD, Conn., Sept. 29, 2014 /PRNewswire/ — Early indications of renewed interest in the life settlements market are focused on existing pools of policies, according to a new study by Conning.

“The life settlements market continues to show signs of recovery,” said Scott Hawkins, analyst at Conning. “Life settlement transactions increased in 2013 for the second year in a row, and indications are that 2014 will likely continue that trend. The all-important institutional investor interest is focused on the tertiary market of existing settled policies.”

The Conning study, “Life Settlements: Growing Unmet Need, Increasing Opportunity” provides Conning’s annual Life Settlements Market Review and Forecast, along with market guidance. The study analyzes the challenges of aligning interests in this market and building a diversified portfolio. This study is the eleventh such report on the market published by Conning.

“While our long term forecast for life settlements over the next ten years is for growth in new settlements, that growth will not be sufficient to offset the decrease in in-force life settlements through claims,” said Steve Webersen, director of research at Conning. “The resulting reduction of the in-force market will intensify tertiary market competition. We will be watching for above-forecast indications of new market initiatives building volume through smaller face value and long term care policy home cleaning”

Originally published September 2014, compliments of Conning Finance

Term-to-perm profit with life settlements


For your clients in their 70s with maturing convertible term policies, time is running out to exchange these policies, and a life settlement might just be the best available option.

Life insurance settlements offer the opportunity to help clients evaluate the dwindling asset value of convertible term life insurance policies nearing expiration. In the right situation, a policyholder can cash in by first converting to a whole or universal life policy, then selling the permanent policy to a life settlement provider.

In such a case, the term policyholder avoids the higher premium costs associated with most convertible policies and receives cash proportionate to the value of the new asset.

Life settlement funding companies, recognizing this trend in the market, are now offering annual valuation programs to help with the decision-making process. Illustrations and projections, provided free of charge, help determine the viability of a conversion, costs and ultimately what a life settlement payout may look like. The tools are in place for agents to make easy, annual evaluations of policies for possible “term-to-perm-to-life-settlement” transactions.

Here’s how you do it
In the last 20 years, the life settlement industry has grown substantially and now purchases billions of dollars’ worth of life insurance policies annually. Agents are the key to this success, as they hold a wealth of information about policyholders and their personal and family situations.

Settlement providers receive the applications, process and underwrite them. And they prepare settlement offers with sources of capital prepared to purchase the policies for cash. Term policies are particularly attractive if you draw up a strategic plan.

Know your clients
The first step is to review your client portfolio for customers whose convertible term policies are nearing maturity. In particular, people who purchased large face-value policies a decade or more ago may encounter increased premiums in order to renew or convert.

In today’s economy, coverage may appear less attractive than the cash. The temptation is strong to simply let the policy lapse at maturity without perceiving any potential asset value at all. Your advice can make the difference between a customer selling their policy and receiving a cash payout, and them simply letting the policy lapse.

Originally published September 2014, compliments of Life Health Pro

Provision of long-term care: How will we care?


The provision of long-term care (LTC) for the elderly is one of the biggest challenges society will face in the coming years as the number of retirees expands and the working age population shrinks.

Data on median wealth suggests that people in the US could only afford a six-month stay in a nursing facility, even if they sell their homes. It’s a similar story in many other countries, such as in Europe, and in China, but few people realize there is a funding gap.

LTC funding may not be on our minds now, but the quality our future well-being depends on awareness and action.In the latest sigma study, How will we care? Finding sustainable long-term care solutions for an aging world (PDF, 1.51 MB), Swiss Re researchers examine the possible paths to LTC funding.

Costly misconceptions
The bulk of care for the elderly today is provided informally by family members and financed largely out-of-pocket. Yet general awareness of the risks and costs of providing for one’s own LTC is very low. People of working age rarely think of what will be in 50 years time: their end-of-life needs are remote and rank low on their list of priorities.

Also many people wrongly assume that when the time comes, the state will step in. Already today, state provision systems in many advanced countries are far from comprehensive and in most emerging markets don’t exist. And in many places where it does exist, state support is being scaled back because public finances are tight.

At the same time, traditional models of family care are under pressure from demographic and societal changes such as smaller families, younger people moving from rural to urban areas, and increasing female labor force participation. These changes will lead ‎to a shortage of informal caregivers, which in turn could lead to a shift to more expensive formal sector options. Maintaining or building an adequate formal LTC supply, however, also requires significant investment.

Who will pay?
Individuals will increasingly need to shoulder the financial burden of their own LTC needs. Can they do so? With lack of awareness comes lack of preparedness, and the indications are that many people will struggle.

Private insurance can help people be better prepared. To date, the industry has typically contributed less than 2% of total annual LTC spending in different countries. Private insurers can and should play a bigger role by, for example, developing more hybrid type solutions that combine LTC insurance with life, no more chores retirement/pension and critical illness products. They can also design products that better meet consumers’ needs, with more visible and tangible value to policyholders

A multi-stakeholder solution
But it’s not just about insurance solutions. All stakeholders – governments, healthcare institutions, care providers, insurers and consumers of care services – can be part of a financially sustainable LTC solution. For instance, governments and employers can do more to raise awareness of LTC risks, and private insurers could become investors in care infrastructure. There can also be better coordination among the different agents involved in care delivery and greater promotion of healthy-aging initiatives.

These are just some of the issues addressed and solutions proposed in the latest sigma study How will we care? Finding sustainable long-term care solutions for an aging world.

Originally published October 2014, compliments of

Long-Term Care: How Big a Risk?


IB#14-18 – Long-Term Care: How Big a Risk? Briefs based on the research available from the Center for Retirement Research at Boston College.
The brief’s key findings are:

  • Long-term care is expensive, but only 13 percent of single individuals over 65 have long-term care insurance.
  • Previous models of care usage appear to understate the risk of going into care and overstate the duration of care for those who require it.
  • If long-term care is a more likely, but less expensive, event, fewer people may benefit from insurance than previously estimated.
  • Our analysis shows that it is optimal for only about 20-30 percent of single individuals to buy insurance.
  • This result strengthens the finding of previous research that Medicaid crowd-out can explain why most households do not buy insurance.

> Download Full Brief

Originally published November 2014, compliments of the Center for Retirement Research at Boston College

Unwanted life insurance can be a valuable asset for seniors’ retirement


Seniors looking for an additional source of income should think twice about letting unwanted life insurance lapse, because these policies may be sold for substantial value to help fund a better quality of life in their retirement.

“We buy insurance for needs that we perceive will be there in the future and those needs may well change,” says Rick Robertson, an expert in finance and managerial accounting with Western University’s Ivey Business School in London, Ont.

A family might have taken out a policy when their son was 15 years old, for example, but that protection may no longer be needed when the parents are retired and he’s 35 years old and enjoying a successful career. Premiums can also become a significant financial burden and unaffordable.

Selling that contract to a life settlement company “is another way of getting value out of this policy,” Robertson says.

The life settlement market is established in Quebec, Saskatchewan, New Brunswick and Nova Scotia where the sale of policies is legal, but these transactions aren’t permitted in other provinces. There are some misconceptions about these products in the insurance community, but their legality is firmly established in the Quebec Civil Code. Critics of life settlements argue that these contracts could result in some seniors being exploited, or that they may not get fair value for their existing policies.

There is also a reluctance to discuss this type of transaction, in the same way some people are uncomfortable buying life insurance or investing in an annuity because these are associated with the end of life.

But experts say the unease people feel when thinking about death shouldn’t prevent them from making use of a valuable asset.

“This is a huge amount of money, and with aging populations throughout North America living longer and having more longevity risk, this seems like an asset that can be a great source of value for them to tap into,” says Lauren Cohen, a professor of finance at Harvard Business School.

“(It’s) a lack of awareness. People don’t understand this, and if you look at the incentives in the markets, insurance companies are not going to be highlighting this on their marketing materials because they have the good side of this deal.”

Darwin Bayston, president and chief executive officer of the Life Insurance Settlement Association in the United States, says the majority of seniors don’t know about the secondary market for life insurance. He notes that although selling a policy may not be the right decision for everyone, people should be aware it’s an option.
“Billions of dollars of face value of life insurance is actually surrendered back or lapsed by seniors, and most of those don’t have an understanding or awareness that they may be able to sell it if they choose to do so,” he says.

Some estimate close to 90 per cent of all policies purchased never result in a benefit payment. This amounts to billions of insurance every year. Policies being abandoned are allowed to lapse or are surrendered to the original life insurance company for a cash value before maturity. That value is typically substantially less than what a life settlement fund would pay, but both options come in below the policy’s total benefit if you continue to pay premiums and allow it to run its course.
Cohen believes people who wish to sell their policies are better off using the secondary market. Cashing the contract in with the original insurer, he says, is “like saying, if you want to sell your house, you have to sell it back to the bank who gave you the mortgage – and of course, they can decide whatever price they want to offer, and you have to take that price or take zero.” You can also insure your house to claim flood damage costs, if your house is damaged due to flood.

“That’s not the way that markets work, that’s not the way that assets get their fair value,” he said.

Ken Lester, a professor at McGill University’s Desautels Faculty of Management and CEO of Lester Asset Management Inc. in Montreal, says life settlements are a bit like reverse mortgages, which allow homeowners to take out a loan against the equity in their home to receive cash payments.

“For certain people it can be a very win-win kind of situation, where they don’t need the money on death, they need it very badly while they’re alive,” Lester says.
“Philosophically, I’m all for it. We only have one life to live and we should live it as comfortably as we possibly can.”

To Ivey’s Robertson, the most important consideration when weighing whether to sell a policy is whether people have — and understand —the information they need to make a decision. And he is clear in his view about restrictions against people having the choice to do so in some parts of Canada.

“I’m a big believer in providing people the freedom to do what’s right for them, as opposed to the government saying ‘I know better than you,’ because the government doesn’t know my situation,” he says.

“It’s like the government telling me I can’t sell shares I own in BCE. Why not? Maybe I’m not a wise investor, but they don’t tell me I can’t do that. This is just another one of the assets I happen to own.”

Originally published November 2014, compliments of the Montreal Gazette. This story was produced by Postmedia’s advertising department in collaboration with Perisen to promote awareness of this topic for commercial purposes.