The Complete History of The Life Settlement Industry
18th Century, London. The Birth Of Life Insurance.
Amicable Society for a Perpetual Assurance Office (a.k.a. “Amicable Society”) is considered the first life insurance company in the world.
It’s founders, William Talbot (Bishop of Oxford) and Sir Thomas Allen, 2nd Baronet and it’s 2,000 members aged twelve to fifty-five, paid a fixed annual payment per share. At the end of the year a portion of the fund was divided among the wives and children of deceased members proportionate to the amount of shares the heirs owned.
Years later, fifty-one year old mathematician James Dodson was denied membership into the Amicable Society for being over the age limit for new members.
In response, Dodson, started a new society. Teaming up with renowned mathematicians, Halley, De Moivre, Simpson, De Parcieux, developed the modified Society for Equitable Assurances on Lives and Survivorships. In 1757, this new life insurance society submitted a petition for a charter of incorporation but was rejected in 1761. In 1762 a modification of the original terms was finally agreed upon and the society started a business of life insurance. Equitable’s life insurance was different than Amicable’s in that the premiums varied depending on the insured’s age. Anybody could be insured and were admitted regardless of their state of health and other circumstances. Equitable had many imperfections early on, but eventually grew into the billion dollar life insurance industry that we know it today.
Due to Equitable’s new type of insurance, Amicable changed its policies in 1807. It then had various premium fees to be paid on policies obtainable according to age, occupation, and health. In 1866 the Amicable Society was acquired by the Norwich Union Life Insurance Society.
As The Romans Do
Interestingly, there’s actually evidence of early forms of life insurance even as early as ancient Rome. People joined burial clubs to assist survivors and cover funeral expenses. There’s definitely been a need for life insurance throughout past societies.
When Life Insurance Became Personal Property
In 1911 Dr. Grisby offered a patient $100 and a medical procedure for his life insurance policy. Grisby took over the patient’s (John Buchard) premiums to receive the death benefit when Buchard passed.
The executor of Buchard’s estate was against the sale and took the case to the Supreme Court. Where eventually the court ruled in Grisby’s favor. Thus showing that life insurance policies are property and can be sold legally.
The Viatical Settlement Industry Gained Traction
The AIDS epidemic in the 1980s created more need for the life settlement industry. Many people needed cash for treatment while they were still alive. Viatical settlements provided this to people dying with a life insurance policy. This is where the life settlement industry gained more social acceptance and more people were aware of the option.
New drug therapies changed the life expectancy of those with AIDS. Thus making viatical settlements less attractive to investors. This shifted the industry back to life settlements. Where the policyholder is of a certain age but doesn’t need to have any terminal health condition.
The Viatical Association of America
In 1994 The Viatical Association of America (VAA) was founded. This association promoted and developed the viatical settlement industry. In 2005, 25 states regulated the life insurance industry. The name of this association was then changed to The Life Insurance Settlement Industry (LISA). In 2014 the life settlement industry was regulated in 42 states.
Life Settlements Often Associated with STOLI Transactions
There’s an illegal practice called Stranger Originated Life Insurance (STOLI or SOLI). This is where someone takes out a life insurance policy on another person when they have nothing to gain from them being alive.
For example, if you know someone is old or very ill, you can’t get life insurance for them and make yourself the beneficiary. Even if you’re paying the premiums. This is illegal.
Without understanding the industry, you may mistake this situation for a life settlement. However, life settlements are completely legal and regulated. The key difference between the two is that with STOLI transactions the life insurance policy is brand new.
With a life settlement, the policy has been in force for years and the policyholder is transferring it.
With the increase in STOLI transactions and talk of fraud, the life settlement industry certainly hit a road bump. The interest died down as people were afraid to do something illegal.
The Viatical Settlements Models Act
In 2001, The National Association of Insurance Commissions introduced an act to discourage fraud. This outlined fair business practices making the process and regulations clear. This provided the life settlement industry with the fuel to move forward with more interest. Due to the smooth legal process.
Recognizing The Financial Advantage Available To Seniors
By 2009, The United States Special Committee on Aging was recommending life settlements. They found that life settlements can give seniors eight times more than the cash value life insurance companies would give.
Continued Growth For The Life Settlement Industry
The life settlement industry grows every year. Meaning the total amount of money settled increases. And it is expected to continue to grow. Looking at these possibilities for the future:
- With baby boomers retiring, investors will have more policies to choose from.
- Economic disruption from COVID 19 as well as inflation may increase the appeal of life settlements.
Life Settlement Brokers’ Impact On The Life Settlement Industry
Life settlement brokers give policyholders an expert in their corner to help them navigate the process, ensuring they’re getting the highest offer for their policy. Brokers have increased the payout for life settlements in the industry.
Alternatively, people can sell their policy to a direct buyer. But they give up the opportunity to send the policy to the market where people bid on the policy.
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