The Myth of the 150th Birthday: Science and Life Expectancy

You’ve likely heard it said that the steady increase in life expectancy over the past several decades is evidence that advancements in medical science have enabled us to extend human life and that it will soon become common for Americans to live to be 125, 135 or even 150 years old.

 Well, maybe not so fast.

The Myth of the 150th Birthday: Science and Life Expectancy - Life Settlement - LISA.ORG

The Myth of the 150th Birthday: Science and Life Expectancy

At the Life Insurance Settlement Association’s 2014 Annual Fall Life Settlement and Compliance Conference, which was held last month in Scottsdale, Ariz., the keynote speaker for the general session was Jay Olshansky, Ph.D., professor at University of Illinois at Chicago’s School of Public Health. Dr. Olshansky reviewed some of his research into estimating the duration of life, which indicates that although advancements in science and medicine are extending the average life expectancy for Americans, it is unlikely to ever create conditions where Americans are routinely able to live 100 years or more.

“In spite of what you may read on magazine covers and newspaper headlines, the truth is that the timing of death in human beings has never really changed,” said Dr. Olshansky. “It’s certainly true that a larger number of people are living longer today than in the past – and that trend will continue – but life span itself is unlikely to change and we’re just not going to see a whole generation of Americans suddenly living to be 120 years old. We have fewer infant deaths than we did in the past, but in return we now have more people dying from cancer, heart disease and dementia in their 80s.”

Having attempted to bust the myth of the 150th birthday, Dr. Olshansky and his academic colleagues have dug deeper into the data regarding life span and have also turned up a startling conclusion with broad social implications: the gap between the life spans of highly educated Americans and their uneducated peers is as much as 15 years.

 “There really are two Americas,” said Dr. Olshansky. “The best-educated among us are doing very well financially and living longer, but the least-educated of us are lagging far behind economically and experiencing declines in health that lead to shorter lifetimes. In studying life expectancy tables, even a one-year gap would be large; a 15-year gap is simply monumental.”

Dr. Olshansky’s work is part of a body of research that is allowing academics and actuaries to more precisely model life expectancy among various population groups in the U.S. This new scientific research is extremely important to the life insurance industry as it has profound implications for underwriters who ultimately frame the way that insurers set premiums for each unique policy they issue. It’s also of great importance to the burgeoning life settlement industry as it helps consumers, financial advisors and investors all obtain a more transparent and predictable understanding of which life insurance policies are appropriate for settlement.

All of us in the life settlement market – consumers, advisors, brokers and investors – benefit from more accurate data and a more precise understanding of life expectancy. We should be open to innovative research into human longevity and be willing to challenge our traditional thinking about life expectancy when new data becomes available, even if that research and new data seems out of the box to us at first glance.

And if Dr. Olshansky’s research is correct, the first lesson to be learned is that the birthday cake with 150 candles on top isn’t likely to be making an appearance in your kitchen any time soon.

Life Settlement Association adds keynote speakers and attorneys from high profile case Larry Grill, et al. v. Lincoln to its Fall Conference Oct 5-7.

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The Life InsuranceLISA-Blog Settlement Association (LISA), which educates consumers and financial advisors about options for unlocking the hidden value in life insurance policies, today announced a key addition to its final agenda for its 2014 Annual Fall Life Settlement and Compliance Conference on October 5th-7th at the Omni Scottsdale Resort & Spa in Scottsdale, Ariz.

Key speakers and attorneys, Gordon A. Schaller, prominent tax and estate planning attorney in Southern California, Partner, Jeffer Mangels, Butler & Mitchell LLP, along with Daniel L. Warshaw, civil litigator and trial lawyer, partner of Pearson, Simon & Warshaw, LLP, will be present and provide an overview of the recent lawsuit that has drawn nationwide attention, Larry Grill, et al. v. Lincoln National Life Insurance Co., filed in federal district court in California. In this case, the owners of a life insurance policy brought suit alleging claims for fraudulent concealment stemming from the carrier’s failure to inform them of the existence and possibility of selling their policy into the secondary market.

“This is an important case for the life settlement industry because it’s one of the first lawsuits alleging that life insurers have an affirmative obligation to disclose the existence of the life settlements option” said Darwin Bayston, President and CEO of the Life Insurance Settlement Association.

While nearly 80 percent of baby boomers and seniors are interested in life settlements as a means to supplement retirement finances, many seniors — and many of their financial and legal advisors — are not aware that a life insurance policy is personal property and may be sold as a life settlement for a value greater than its cash surrender value. “As a result, billions of dollars (face value) of policies that are no longer needed, wanted or affordable are lapsed and surrendered back to life insurance carriers by seniors who might have sold them for a cash payment” says Bayston.

Gordon A. Schaller along with Daniel L. Warshaw  are scheduled to speak on Monday October 6th at 2:30 PM.

 

Why agents can’t mention life settlements

Why agents can’t mention life settlements

Why agents can’t mention life settlements?

At a recent conference, we were stunned when we asked the agents, advisors and registered reps in the audience if they would recommend the life settlement option to a client. A number of participants said they would like to do so — and many indicated they had actually seen cases where their clients would have truly benefitted from selling an unwanted, unneeded or unaffordable life insurance policy on the secondary market — but couldn’t because their insurance company or broker-dealer did not allow participation in the life settlement market.

This has been an ongoing issue for years. Independent and captive agents or representatives of large carriers or broker-dealers operate at the behest of their employers or employee contracts, some of which ban participation or even discussion of the life settlement option to their clients. We are of course not advocating that agents or reps violate contract or employment law; we are simply trying to get to the core of why the carriers and B-Ds won’t allow such discussion or disclosure.

Aside from “protocol won’t allow for it,” carriers’ concerns range from the impact of lower lapse rates on profitability to potential loss of tax-free buildup of cash value within the policy to suitability concerns and due diligence issues. B-Ds cite the risks associated with increased compliance burdens and FINRA standards as reasons for not allowing participation.

Understandable, if this were 2006.

Some years back a large carrier cited “potential for abuse” and an “unsettled tax and regulatory climate” as reasons their agents are “strictly prohibited” from participating in the market — and we would be willing to bet similar language exists in other companies’ manuals, too. Our response: rest assured. The market is approaching full regulation around the U.S., with 42 states and Puerto Rico containing some form of comprehensive life settlement regulation. As for the potential for abuse, there have been only three closed consumer complaints nationwide involving life or viatical settlements since 2011, according to the National Association of Insurance Commissioner’s Consumer Information Source. This pales in comparison to the more than 8,000 complaints against insurance carriers for delays in paying claims, and that’s just in 2014, alone!

Please click below to read the entire article.

http://www.lifehealthpro.com/2014/09/19/why-agents-cant-mention-life-settlements?t=variable

Supply and Demand for Life Settlements Growing

Supply and Demand for Life Settlements Growing

Supply and Demand for Life Settlements Growing

While some speak about the quantity of policies decreasing from its former highs, the truth is that we are seeing more policies that are eligible to purchase since the decline of 2008. In my view, the market is robust and getting stronger. The quantity of manufactured paper and other “junk” that has no value to life settlement investors has become near non-existent and the quality of the policies in the market has dramatically increased.  Thus the percentage of policies that can be purchased has actually increased.  This is due to the market players becoming more sophisticated and understanding what policies have the highest probability of being purchased.  It is also the result of increased consumer awareness.  Several states now require life insurance carriers to notify policy owners about the life settlement market, when they are about to lapse a policy and Medicaid statutes in several states have proposed to use life settlements to fund health care.  These measures and concerted efforts by the Life Insurance Settlement Association and the industry is raising the awareness of policy owners of the life settlement option.

Investor demand is also quite high.  RIAs continue to allocate to life settlements in an effort diversify into an alternative asset class that has little correlation to the equity markets.  Institutional investors also appreciate the potential for outsized risk-adjusted returns.  When one considers the normally high credit ratings of insurance carriers, the potential returns of life settlements can be attractive, particularly in today’s low-interest environment where fixed income returns are difficult to come by.  While returns are a leading driver for investors, they also see greater regulation providing protections for consumers and more certainty for the assets themselves.

In short, both the supply and demand for life settlements is growing.  To continue this trend, the industry needs to change the discourse. Life settlements have changed.  Regulation protects sellers.  Institutions have brought consistent capital and best practices to the market.  States have recognized the value of life settlements through disclosure laws and Medicaid statutes.   Consumers can look at life settlements as a viable option to consider.

As the life settlement message becomes clearer, more policies will come to the market.  As investors continue to see the potential for outsized risk adjusted returns with low volatility, more capital will come to the market, driving up the price of policies.  Higher prices for policies will encourage more sellers.  This virtuous circle will drive the growth of the life settlement market.

Dan Young is President of Magna Life Settlements, one of the leading life settlement providers in the industry as measured by the face value of policies transacted.  Magna is wholly owned by Vida Capital and a member of the Life Insurance Settlement Association (LISA).

The Life Settlement Option: A Duty to Inform?

For the past two-and-a-half decades owners of life insurance policies who decide they no longer want or need those policies have had an alternative to surrendering those policies back to the issuing carrier – access to an organized and vibrant secondary market for life insurance, giving policy owners liquidity in a previously illiquid asset.  Surprisingly, unlike most originators of an asset for which there is a secondary market, life insurers have been slow to embrace this pro-consumer option.  In fact, the American Council of Life Insurers has actively opposed legislation creating an obligation for life insurance carriers to inform policy owners who have decided to lapse or surrender their policies that a life settlement might be an option.

The Life Settlement Option: A Duty to Inform?

The Life Settlement Option: A Duty to Inform?

The inevitable consequence of the ACLI’s and life insurance carriers’ position on voluntary disclosure is playing out in the recent lawsuit Larry Grill, et al. v. Lincoln National Life Insurance Co., filed in federal district court in California.  In this case, the owners of a life insurance policy brought suit alleging claims for fraudulent concealment, financial abuse of an elder and violation of California’s Unfair Competition Law, all stemming from the carrier’s failure to inform them of the existence and possibility of selling their policy into the secondary market for life insurance.

The plaintiffs purchased a policy from the defendant in 2004 with a face value of over $7,000,000; and, notwithstanding having paid hundreds of thousands of dollars in premiums, the investment returns on the policy became insufficient to cover the on-going cost of insurance charges.  The plaintiffs approached the defendant’s agent and were told their only options were to pay more premiums into the policy or undertake a partial surrender to decrease the cost of insurance.  The plaintiffs chose to surrender over $5,000,000 of the original face value of the policy.  When the plaintiffs learned that they might have been able to sell that $5,000,000 in coverage into the secondary market for life insurance, they filed suit.  The carrier filed a motion to dismiss for failure to state a claim upon which relief can be granted; that is, the carrier argued even if the plaintiffs’ claims were accepted as true, they were still entitled no relief.

On the basis of a technical analysis focused on the sufficiency of the claims pleaded by the plaintiffs, the court ultimately dismissed all of those claims; however, it did so with leave to amend to cure the deficiencies in the pleadings, and with a clear indication that the court believes that the plaintiffs’ claims are viable and can proceed once they were correctly presented.  For instance, the court stated that “the Court agrees that Plaintiffs have sufficiently alleged a duty to disclose based on partial representations by alleging that Defendant’s agent represented that they had two options and concealed the life settlement option”.  Further, the court concluded that the plaintiffs had sufficiently alleged a claim under California’s Unfair Competition Law on the basis of their claims that 1) elder citizens are unaware of the option of a life settlement; 2) that the defendant has a practice or policy of concealing the option from such citizens; and 3) that there is no utility or countervailing benefit to the defendant’s conduct.  Faced with these facts, the court concluded “[t]he Court agrees that there does not appear to be any utility to this alleged practice [failing to disclose the life settlement option], but the possible monetary harm to the insured and policy beneficiaries is clear.”

In sum, while this is one of the first lawsuits alleging that life insurers have an affirmative obligation to disclose the existence of the life settlements option, even in the absence of a legislative obligation to do so, it is unlikely to be the last.  For nearly 30 years the secondary market has offered consumers an option to realize additional value from their life insurance policies, it is time for life insurers to voluntarily embrace the secondary market before they are ordered to do so.

Originally published in Morris, Manning & Martin’s Insurance and Reinsurance Review Newsletter (Summer 2014)

- See more at: http://www.mmmlaw.com/media-room/publications/newsletter/the-life-settlement-option-a-duty-to-inform

Why every senior has a right to know about life settlements

A popular narrative in mainstream news media coverage is that the lack of planning for individuals approaching retirement is pointing the way to a serious national problem. Health care and other costs are on the rise and a great many seniors are in a state of uncertainty about their finances. For many, a state of panic sets in when they realize their resources may not be enough to pay for the comfortable retirement years they once envisioned.

As one of the most overlooked assets in an individual’s investment portfolio, a life insurance policy is often not utilized to its full potential. Why? My experience over the past few decades in this business has shown me that it’s because individuals are unaware this asset creates liquidity options for them and, unfortunately, their professional advisors don’t understand all alternative uses for a life insurance policy. Many advisors, acting out of the best intentions, simply advise their clients to lapse or surrender the policy, roll it into a paid-up policy, or reduce the death benefit to save premiums.

But what about a life settlement?

Many seniors — and many of their financial and legal advisors, too — are not aware that a life insurance policy is personal property and may be sold as a life settlement for a value substantially greater than its cash surrender value. As a result, billions of dollars (face value) of policies that are no longer needed, wanted or affordable are lapsed and surrendered back to life insurance carriers by seniors who might have sold them for a cash payment. According to a Government Accountability Office (GAO) study on life settlements, the amount policyholders who settled their policies received was up to seven times that of the lapse or surrender value.  That represents hundreds of millions of dollars of value given back to insurance carriers.

Studies show that nearly 80 percent of baby boomers and seniors are interested in life settlements as a means to supplement retirement finances.

So, let’s talk about a senior’s right to know about their options with life insurance policies. Specifically, I believe they ought to have a right to know that there are options they should consider before lapsing their policy.  Six states — Kentucky, Maine, New Hampshire, Oregon, Washington and Wisconsin — have already passed various versions of a life insurance disclosure requirement, requiring insurance carriers to notify seniors in certain circumstances of the alternatives to lapse or surrender of their policy. These alternatives may include options such as the following:

Please visit the LifeHealthPro link below for the blog on its entirety:
http://www.lifehealthpro.com/2014/08/13/why-every-senior-has-a-right-to-know-about-life-se

2013 Conning Report – A Treasure Trove of Information

LISA-200X100In early January Conning, Inc. released their 2013 report, “Life Settlements, A New Opportunity in Smaller Policies”.  The report offers a treasure trove of information for our industry.

Three things stand out in the report.  First, Conning reaffirms that the size of the potential market for secondary transactions is large.  Conning estimates an average face value Net Market Potential (NMP) of $122 billion for the next ten years.  Conning defined NMP as the total face value of policies that meet investor criteria and whose owners would consider selling their policies. That should put to rest concerns about supply.

Second, attracting investment capital remains a challenge according to Conning:  “Liquidity appears to be the largest hindrance to a strong return of capital to life settlements.”  The set of investors willing to commit capital for 8 to 10 years without an “effective tertiary market where already settled policies can be sold” will remain limited until this issue can be addressed.   A robust market for policies with shorter life expectancies attached would increase the supply of short duration policies and, in turn, offset liquidity concerns, thus improving the environment for growth of investment capital.  Conning concludes that “a shift toward nursing home care may help reduce the liquidity risk created by holding policies with longer life expectancies.”

Third, Conning reports a favorable view of the life settlement market’s entry into the long-term care sector:  “As elderly individuals, and their families, look for ways to pay for LTC, life settlements offer an additional source of LTC funding.  This creates a new opportunity for life settlement investors.”  In estimating the size of market, Conning presents several approaches for investors to consider.  In one analysis, Conning suggested that there may be more than $40 billion of death benefit that could be sold by policyowners seeking to finance their long-term care needs.  The opportunity for life settlement growth of smaller face policies of shorter duration is significant and will require changes in business plans and strategies of market participants, says Conning.  Relying on intermediaries to originate policies and the complexity of the life settlement transaction will be factors that could limit the profitability in small face transactions.  Time from submission to closing will have to be reduced and the transaction process streamlined.  Marketing and awareness will require innovation and creativity.

Professor Lauren Cohen, author of the Harvard Business School case study about life settlements, concludes there is every reason why the life settlement industry will thrive and grow, and at the same time there is every reason why the industry will need to make significant changes. The Conning Report confirms the view of Professor Cohen.  If there is a major theme in the report, it is that the future is now.  LISA is very pleased that Professor Cohen will also be at the Investor Conference and will present his case study on life settlements.

Sign up now for LISA’s 4th Annual Institutional Investor Conference on February 24, 2014, in New York City, where attendees will learn more about these opportunities and challenges for the life settlement market.  As of today, space is very limited, so register IMMEDIATELY!  .

Darwin M. Bayston, CFA
President and CEO
Life Insurance Settlement Association

Tertiary Portfolios Play an Important Role in the Life Settlement Market

The issues regarding significant new institutional capital entering the life settlement market in contrast to the sufficiency of original policy submissions is a topic of great interest.  For new investors, understanding the issues and nuances of valuing newly originated policies compared with tertiary policies and portfolios is important to understand.

19th-Annual-Fall-Conference-LogoOn the surface, it would appear since tertiary policies have been “previously owned,” the valuation process would be less complex with more information known, as they have been previously vetted, valued and “time observed”.  Aside from portfolios considered of adverse quality, there are a number of factors that impact the valuation and pricing of tertiary policies/portfolios.  Some factors relate to individual policies and some relate to the portfolio itself.

The difficulty, and sometimes inability, to re-underwrite insured lives and the impact on tertiary policy values is common discussion and debate.  Factors, given lesser discussion and debate, include the constraints related to servicing agreements, any limits or conditions on the bidding and sale process of the portfolio, and limits on confidential information related to insured lives.  For the seller, these and other limiting factors may seem trivial.  For the buyer, any constraints on the total disclosure of information or any conditions that limit a “no strings attached” transfer or ownership will impact the valuation of tertiary policies or portfolios.

The topic of tertiary policy and portfolio valuations will be discussed at LISA’s 19th Fall Conference in Orlando, October 9-11.  We encourage institutional investors to join us in the discussion and debate of this topic.

U.S. Commission on Long-Term Care Recognizes Life Settlements as a Private Sector Solution to Aid in Long-Term Care Crisis

The federal Commission on Long-Term Care, established by Congress to examine the long-term care crisis and propose potential solutions, released its final report this week.  The Report focuses considerable attention on financing long-term care services and includes a number of policy ideas, one impacting life settlements.

The report notes the role that life settlements could play in the private financing of long-term care.  One of the ideas presented recommends further examination and perhaps expansion of “the conversion of life insurance policies to long-term care benefit plans.”  The Life Insurance Settlement Association (LISA) supports this recommendation and notes that the general nature of this statement suggests implications for life settlements extending far beyond the current Medicaid legislation recently passed by Texas and being considered by many other States.

Life Settlements: The Next Ten Years of Unlimited Opportunity

U.S. Commission on Long-Term Care Recognizes Life Settlements as a Private Sector Solution to Aid in Long-Term Care Crisis

We have long been aware of the demographics of millions of seniors owning  hundreds of billions of dollars of life insurance, many who no longer need, can afford or want the policies.  The recent survey by ICR for The Lifeline Program found that (1) “55 percent of seniors have allowed their life insurance policies to lapse, viewing it as a liability instead of an asset (emphasis mine)”, (2) 80% of seniors over age 66 were not aware they could sell their policy, and (3) 40% are concerned about the ability to meet their long-term care needs.

These developments provide a significant and compelling mandate for the life settlement industry to coalesce around a massive effort to expand the awareness, information and knowledge of the benefits a life settlement option may provide for the millions of seniors who are in need of financial assistance for their long-term health care needs.

America’s seniors deserve to know about the options available regarding their life insurance policies and seniors’ financial advisors and counselors, the life insurance industry, and more importantly, the life settlement industry all have a responsibility and opportunity to help them.

The Life Insurance Settlement Association (LISA) is undertaking a massive program to create awareness for seniors, advisors, counselors and the financial industry about the importance and benefits of a life settlement.  Join us in that effort.  Attend our 19th Annual Fall Conference on October 9-11 in Orlando. Join the Association as a Member firm and get involved. Contact our office for more information.  (407) 894-3797.

The Life Insurance Settlement Association (LISA) Fall Conference – Why Should I (meaning you) Care?

19th-Annual-Fall-Conference-Logo

The Life Insurance Settlement Association (LISA) is hosting its 19th Annual Fall Life Settlement and Compliance Conference in Orlando, FL from October 9-11, 2013.  It promises to be innovative, inspiring and important to the growth of the life settlement industry.

One question often asked from LISA members, industry participants and prospective attendees, “Why should I care about the conference?  It appears there is little on the program that affects me or that I am interested in.”  The answer is, “The entire industry has a stake in the millions of seniors and their advisors, counselors and caregivers having an awareness and understanding about a life settlement, as well as the other options available to them regarding life insurance policies they no longer need, want or can afford.”

Over the past 19 years, LISA, as represented in its conferences, has evolved into the most influential and important Association representing the life settlement industry.  It is human nature to focus on the immediate past and ask, “So, what have you done for me lately?”  The question should be, “What are you doing now and what are you doing to grow the industry?”  Then you can make the connection regarding the real question, “What are you doing that will cause my business to grow?”

In brief, we need to remind ourselves about what LISA has done over the past 19 years to influence the present.  It has been the dedicated efforts, financial support and motivation of LISA members, Board members, and staff who led a charge of focused activities, legislative influence, conference activities and policy positions (ethical behavior, STOLI, disclosure, transparency) that has created a consumer friendly secondary market where seniors may sell their unwanted, unneeded and unaffordable life insurance policies.  In sum, it has created an environment that allows your business to thrive and grow.

In simple terms, the potential of the life settlement market is comprised of: (1) millions of seniors who hold $1+ trillion face value of life insurance policies, (2) institutional investors who have $billions to invest in life settlements that offer attractive risk and return attributes, and (3) the many intermediary firms and individuals who provide an array of services in the transactional aspect of life settlements.  It is the mission of LISA’s conferences to present an agenda and speakers in an environment that fosters discussion, analysis and debate that impacts these three simple terms.  We acknowledge the past and the present, and focus on the issues that are important to future growth.  It is that simple.

We need your participation, we need your involvement and we need your support.  LISA will always strive to lead the way in educating and informing the senior community and its support network about the value of a life settlement option.  That in turn will lead to a consumer friendly and credible market where LISA members can grow their business in a credible and highly respected environment.

Come join us on Oct 9-11, 2013.  The industry needs your input, and LISA needs your participation.

Save now, register before our price increase this Wednesday, September 18, 2013.