Over the years you may have heard the term "viatical" in reference to life insurance, or perhaps the term "life settlement" mentioned in a conversation about estate planning. The fact remains most life insurance policy owners are not familiar with what they are, or how they really work. At Plymouth We focus on education first. Please take your time reading this brief discussion of the history, evolution and concept of "Life Settlement" before delving further into the topic with your advisor. As you will come to find, these kinds of exercises are a part of the "Plymouth Process".
Present time: The Secondary and Tertiary markets of life insurance are thriving. Private equity groups, hedge funds and licensed providers constantly search for US life insurance policies, i.e. non-correlated assets, to add to investment portfolios. A “non-correlated” asset does NOT correlate to fluctuations in global financial markets like “correlated” assets such as stocks, bonds and currencies. According to “hedge theory”, non-correlated assets may effectively hedge against other market- sensitive investments. US life insurance policies, being based on actuarial research, human life expectancy and mortality tables, are the most coveted of non-correlated assets.
In recent years, investment institutions have once again become over-funded in this category, driving down internal rates of return thus increasing the value of policies being sold through life settlements. Meanwhile, many policy owners remain unaware of their option to sell unwanted and/or unaffordable life insurance policies even though the concepts behind life settlement were ratified by the United States Supreme Court over a century ago. The legal basis for life settlement was established in 1911 by the U.S. Supreme Court decision “GRIGSBY v. RUSSELL.” Justice Oliver Wendell Holmes Jr. ruled, “So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property.” In the eyes of Federal Law, a life insurance policy is viewed as physical property that may be both bought and sold, similar to that of a land deed.
The fact that the United States Federal Court was able to identify the inherent qualities of a life insurance policy as property over a hundred years ago is lost on most insured Americans. Survey research conducted jointly by Golden Gateway Financial and ISI published May 26, 2009 found that 80% of Americans over age 62 own some level of life insurance but half were not aware that they might be able to sell their policies.
At Plymouth, our mission is education because (1) the demonstrated lack of knowledge necessitates it but also (2) the Life Settlement alternative is a flexible financial concept that creates exciting possibilities within the larger sphere of finanical and estate planning. The demand for life insurance policies from qualified policy owners presents an extraordinary opportunity for capitalization, increasing net worth and discovering alternative investment solutions.