History of Life Settlements

The secondary market for life insurance policies began in the 1980’s in response to individuals living with terminal illness who sought cash from any long-term assets they owned, including life insurance policies, to pay ongoing medical treatment and to maintain their standard of living. Unfortunately for individuals with terminal illness, the predetermined schedule of surrender values offered by the insurance company did not compensate a policyholder for the full market value of the impaired policy. Viatical firms emerged to facilitate these sales and the secondary market for life insurance was born.  The viator or seller received an immediate lump sum payment from the Viatical Company allowing them to life the rest of their remaining life in dignity.

 

The life settlements industry evolved in the late 1990’s as an extension of the viatical industry. Life settlements and viaticals both involve the transfer of an existing life insurance policy under circumstances where the insured has a limited life expectancy; however, where viaticials focused on individuals with life expectancies of two years or less, life settlements (or senior settlements) focused on senior citizens over the age of 65 with life expectancies between two and fifteen years. In addition, viaticals typically targeted policy sizes of $100,000 or less where as life settlements targeted policies between $100,000 and $10 million. This new segment of the secondary market greatly increased the number of policyholders who would qualify for a life settlement. Market awareness for life settlements among policyholders, insurance agents, and financial planners increased substantially. In early 2000, this new “non-correlated” asset class garnered the attention of large Wall Street firms who preceded to “quietly” buy policies for their own portfolios.
 
Market Outlook
 
The life settlements market has become a multi-billion dollar industry in a relatively short timeframe. According to Erich Sippel and Co. and Conning Research & Consulting, Inc. (“Conning”), the life settlement industry grew from two hundred million dollars ($200,000,000) in total policy purchases in 1998 to one billion three hundred million dollars ($1,300,000,000) in 2001, two billion dollars ($2,000,000,000) in 2002, six billion dollars ($6,000,000,000) in 2006, and twelve billion dollars ($12,000,000,000) in 2007. According to Conning, the annual face amount of life insurance policies settled in the secondary market in 2016 could reach between ninety billion dollars ($90,000,000,000) and one hundred forty billion dollars ($140,000,000,000). The growth of this market is expected to be driven by more accurate life expectancy calculations, more transparency in life settlement acquisitions, and better government regulation

 

 
 
 
 
"In early 2000, this new “non-correlated” asset class (Life Settlements) garnered the attention of large Wall Street firms who preceded to “quietly” buy policies for their own portfolios"
 




"According to Conning, the annual face amount of life insurance policies settled in the secondary market in 2016 could reach between $90 billion dollars and $140 billion dollars"