Many people are turned off from the life settlement industry because they believe it to be illegal or just not right. For those of you who want to know a little more than just, “trust me it’s legal”, we’re taking a journey through the past.
Let’s look at how the life settlement industry became what it is today. As well as the moments that created the completely legal process many people have used to change their financial situation.
Of course, the life settlement industry shot off from the life insurance industry. The life insurance industry got its start in the early 18th century in London. William Tabot and Sir Thomas Allen provided dependents of policyholders a death benefit. The policyholder paid annual payments as their premiums for the policy. They called this the Amicable Society for a Perpetual Assurance Office and it’s considered the first life insurance company.
This model came to the United States in 1759 with ministers organizing funds for widows and their children. Over the next hundred years, companies developed this model. Filling a strong need to provide policies to people looking to create stability for their families after they passed.
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.
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 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.
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.
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.
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.
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.
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:
The managing director at Windsor has built a private network of buyers who bid on her client’s cases. They do this in an auction-like process that drives the price up for clients. They have a transparent approach that makes sure that the client is taken care of throughout the process.
Life settlement brokers give policyholders an expert in their corner to help them navigate the process. And ensure 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.
A policyholder is eligible for a life settlement if they have these three things.
If you’re a policyholder considering taking advantage of the life settlement option, start with a life settlement calculator. A broker does all of the heavy lifting, making the process very simple for you. So reach out for a free consultation and we’ll discuss your options.
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