A Life Settlement is the purchase of a life insurance policy at a discount from face value from a person who no longer needs or wants the policy.
The policy owner receives a lump sum settlement and the title for the policy is transferred to a third party, which pays the future premiums due on the policy and eventually collects the death benefit. Previously, the only other option for seniors was for a policy to lapse. Then it was observed that the difference between what a policyholder could receive for surrendering their policy versus the fair market value for their policy is simply astounding. A 2002 study by the Wharton School at the University of Pennsylvania found that while the surrender value for average policyholders amounted to a total of 93.4 million dollars, the fair market value for policy holders amounted to $336.3 million dollars combined.¹ This represents a shocking 360% difference between the cash surrender value and selling the policy as a Life Settlement; and the same still holds true today. This is a principal reason why this “Asset Class” has been so popular with “Smart Money” (institutional investors) and now available to our investors through investing in Crown Alliance Capital Limited.
¹ (The Benefits of a Secondary Market for Life Insurance Policies by Neil A. Doherty and Hal J. Singer)
Life Settlements became more sophisticated as actuarial techniques and advanced financial analysis were implemented during the underwriting process. The senior population has redefined the life insurance settlement industry, expanding the industry into a multi-billion dollar market. The industry today is almost entirely comprised of a few mainstream capital sources that have revolutionized the speed and scale of the secondary insurance market. The industry has also become more specialized with seniors working with financial advisors, brokers and a number of ancillary and service providers. Life Settlements are potentially very profitable because the purchaser acquires a policy at a discount from the face value, which is based on the insured person’s life expectancy and the purchaser’s desired return on capital. The potential rates of return can be in excess of 12-15%
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