Learn More about Life Settlements

Learn more about Life Settlements

Basics

  • Life settlements are financial transactions in which a life insurance policy owner, possessing an unneeded or unwanted life insurance policy sells the policy to an unrelated person. That person becomes the policy’s new owner and beneficiary and is responsible for paying the premiums.

  • A life settlement offers the original policyholder an alternative to either receiving the cash surrender value of the life insurance contract or allowing the policy to lapse.

  • A typical candidate for a life settlement transaction is 65 or older (average age 77) and owns a life insurance policy with a face amount between $500,000 and $5,000,000. A life settlement only will occur when the policy’s market value exceeds its cash surrender value. The key factors in determining the market value of a policy are (1) the death benefit, (2) the expected cost of premiums, and (3) the life expectancy of the insured.


Purchasers

  • An investment in life settlements may be ideal for an investor who wants a medium term product of very high credit quality.

  • In addition to individuals, an investment in life settlements may be highly suitable for institutional investors such as pension funds.

Key Motivations

The key reasons why policyholders sell their life insurance policies are:

  • Changes in estate planning
  • The life insurance policy is no longer needed or wanted
  • Premium payments have become unaffordable
  • Changes in financial and life circumstances
  • The policy is about to lapse
  • The availability of less expensive alternative insurance
  • Tax law changes, especially with respect to inheritance taxes

From a public policy perspective, the ability of an elderly person to sell his or her life insurance policy can help to compensate for underfunded pension plans, poorly performing investment portfolios and the rising cost of healthcare.

History

  • Although the life settlements market is a relatively recent innovation, the right of a U.S. life insurance policyholder to transfer legal ownership and beneficial interest in his policy to a third party at his or her own discretion has been clear since the 1911 Supreme Court ruling in Grigsby v Russell.

  • In 1996, the enactment of the Health Insurance Portability and Accountability Act (HIPAA) strengthened the basis for the life settlements market.

  • In addition to imposing safeguards on the storage and use of protected health information, HIPAA allowed the owner and/or beneficiary of a life insurance policy to transfer the ownership/beneficial interest in that policy to a third party.

  • HIPAA also allowed the proceeds from a life settlement to be free of federal income tax.

  • In March 2007, the Institutional Life Markets Association ("ILMA") was formed by six leading investment banks (Bear Stearns, Credit Suisse, Goldman Sachs, Mizuho International, UBS and West LB) to promote legislative initiatives and best practices in the life settlements industry.

  • The entry into the market of high quality investment vehicles, such as The Lifetrade Fund, has increased investor access.

Seasoned and Experienced Management

  • The Lifetrade Fund is managed by Lifetrade Management Company, LLC (“LMC”). LMC is part of the AVS Group. AVS is the premier provider of longevity related products and services.

  • LMC is a premier and highly experienced asset manager in the industry with over seven years of valuable experience successfully running The Lifetrade Fund. Its management team has worked with the asset class since its inception.

  • Management Team: Click here to learn more about our Management Team


How safe and credit worthy are U.S. life insurance companies?

  • In the modern history of the U.S. life insurance industry, there is not a single recorded instance of a legitimate life insurance claim being unpaid.

  • All U.S. life insurance companies are state regulated. By law, they must have sufficient reserves to meet the claims under the policies which they issue.

  • Investments made by insurance companies are very strictly regulated as they operate under a "risk based capital system" which sets the maximum allowable percentage which can be allocated to a particular investment or class of investments.

  • One of the key functions of state insurance departments is to protect policyholders from the risk of an insurance company falling into financial distress.

  • Each state has a guaranty fund that will pay claims up to a maximum of between $300,000 and $500,000.

  • Each state has life and health insurance guaranty associations which are entities created to protect policyholders of insolvent insurance companies.

Please read the Prospectus when considering an investment.

For any additional information please contact info@lifetrade.com.