Now we know that life insurance companies more than frown upon life settlements.  Life settlements strike at the heart of the life insurance companies business model.  Lapse rates are VERY good for life insurance company profits.  It’s great to collect premiums and not have to ever pay the death benefit.  Especially when, for competitive reasons, lapse rates are built into premium pricing.

But what fiduciary obligations does a life insurance agent, that trusted financial adviser, have to the insured when he or she no longer needs or can afford their policy?  In the past, most agents worked with firms like Life Settlement Systems and did right by their client.  They helped them get a higher price, sometimes a much higher price (see CASE STUDIES on our web page) than the insurance company was willing or able to pay, namely, the policies cash surrender value (“CSV”).   But now some life insurance companies are going further, threatening Agents with termination of their ability to represent them for new life insurance if they participate in the life settlement market.  But is that right?  Is that in the best interest of the client?  I think not.

As a matter of fact, not only is it not right, it might be illegal.  I would like to argue that life insurance companies, and the Agents that represent them, have a fiduciary obligation to do the right thing.  Just as stock brokers (FINRA registered reps all), accountants and attorneys do.  And I think the literature (law review articles, etc.) will begin to bear this out over time.  I actually think it will lead to litigation.  I recommend that clients sue their trusted life insurance agent for not telling them about a potential life settlement alternative.

So Agents, you are in a tough spot.  Yes, you can continue to follow those memos from the home office about the evils of life settlements, but be forewarned.  There is another side to the story.  Just because life settlements are not good for the life insurance companies, does not mean that they are not good for your clients, despite how much the life insurance companies threaten you.  Why don’t you write your own memo to the insurance companies’ Office of General Counsel to see if that same threatening insurance company is going to defend you in the future litigation you face for the breach of your fiduciary duty?

And even if you win the case, do you really win?  How do you think your clients are going to respond when they find out whose interest you put first?  These are your clients, right?  These are your relationships, developed over the years based on a relationship of service and trust.  Don’ breach that trust if you don’t need to.  Call the professionals at Life Settlement Systems today, and let us help you and your client.  It is the right thing to do, no matter what the insurance companies tell you.  Call (212) 504-3085 or visit us www.lifesettlementsystems.com for an alternative to surrender.

The insurance industry dislikes life settlements because it cuts at the heart of their business model.  The insurance industry says they do not price lapses into their premiums, but they do.  They very much like collecting premiums from ten people, and only paying the death benefit to one of those ten. That makes for very healthy margins, high profits, large reserves, big bonuses and high stock prices.  It has always been a bit of an embarrassment to the insurance industry that insurance agents sell a product that only delivers on its core promise (to pay the death benefit) one out of ten times.  And it is not the insurance companies fault.  They are doing nothing wrong.  That is just how it is.  But they certainly do not go out of their way to disclose the facts.  They do not put a disclaimer on any policy that says something like, “History and our experience has shown that you will pay premiums for a life time but only one out of ten (11% to be exact) of you paying premiums for years to come will ever collect a penny of the above promised death benefits.” Hard working mom’s and dad’s are buying important income protection against early death.  And they should.  As much of it as they can afford.  It is cheap relative to the alternative. However, it is the insurance companies that are publicly critical of life settlements saying that fees are too high and the industry lacks transparency.  Yet, does one insurance company disclose THEIR fees?  No.  Does Mr. and Mrs. Middle America know how much of the first year premium on that whole life policy is going to that nice young boy sitting across their kitchen table with all of those papers to sign?  Not!  The life insurance industry hates life settlements, and they have been trying to throw sand in the gears of the life settlement industry any time and in every way that they can.  It is unfortunate that, Ms. Tergesen’s, perhaps un-knowingly, continues to pimp for them in her well written article.

Just look at the activities of the American Society of Chartered Life Underwriters (“CLU”) as they press the insurance industries interest in every State House in the union.  Under the ruse of Stranger Owned Life Insurance (“STOLI”), insurable interest and consumer protection they have manipulated the legislative process in some states to stop owners of life insurance from selling their policies for five years.  They will not stop until they have corrupted all 50 states.

How, in any way, can that be good for consumers?  How can limiting the liquidity or the choice of owners of insurance polices be a form of consumer protection?  It is not.  It is a form of insurance company protection and nothing else.  Legislators who support these initiatives are either stupid or in hock to the insurance companies themselves.  And Providers are no better.

Most Providers these days want full disclosure of broker and agents commissions on every policy they buy.  But they feel NO compunction to disclose their fees.  None.  Is there something about a goose and a gander here?  But, anyway, in a world in which much of the press shills for the insurance industry when talking about life settlements, knowingly or not, it is refreshing to see an article that just talks about what is happening in the life settlement market, even if she was unjustly negative about life settlements.  And what is happening?

Things are tough out there.  LIKE EVERY FINANCIAL ASSET, life settlements are suffering from this massive global de-leveraging JUST LIKE EVERYTHING ELSE, only less so (eg. GE from $39 to $14 in less than a year).  Name brand investment banks like Goldman Sachs and Morgan Stanley are questioning their very survival (both down over 63% this year).  Tergesen, after gratuitously disparaging the industry (“Despite regulators’ concerns about the industry’s high fees, opaque nature and aggressive sales practices,…”) only three sentences into the article goes on to give a little too negative of an update on current conditions in the life settlement market.

By paragraph four, after talking about how, in this financial rout, seniors can get needed cash now through a life settlement, she asks the question, “How quickly can we close?”  Answer in the first line of the next paragraph,  “Not very soon, if at all,” and that is just not true.

Yes, some Providers and Financing entities have stepped away from the market.  But they do that all of the time.  Pockets of money come in, fill their allocation and step away from the market.  The good news is that there is more money in this market than every before.  But there are very few individuals, corporations or institutions that are not effected by this current credit crisis. Very few.  I do not know of one.  But the good news is – there are still buyers.  Lots of them.  Maybe not as many as before, but lots of them.  And seniors need our services more than every before.  Their savings have been eviscerated.  They use to sell 15 shares of month of XYZ corporation to pay bills, and now they have to sell 115 shares.  They can no longer borrow against their home, or worse yet, their mortgage balance exceeds their homes’s market value, especially in the “sand states” (Florida, California, Nevada and Arizona).  States which have a disproportionate amount of seniors.

The article then methodically goes through reasons to not like life settlements.  The 66 year old who could not sell.  Twenty First Services life expectancy extensions lowering prices and NFP’s profits down 28%.  Do you really believe that the insurance industry had nothing to do with language (at paragraph 11) like, “Regulators have long expressed concerns about the life-settlement industry.  While a cash windfall may be appealing, hidden costs — including high fees and potential tax liabilities — can substantially erode what policyholders receive from these deals.”  That was the whole paragraph.

Do you really think that Ms. Tergesen came up with that analysis and language on her own?  I think not.  Next, of course, was the industry fees.  Let’s disclose the life settlement industry’s fees, but you will not find any article in the Wall Street Journal on the payouts and renewals on the most basic permanent life insurance.  That is because John Hancock, and Mass Mutual advertise in the Wall Street Journal.  Ruport Murdoch is not about to bite the hand that feeds him.  Not even close.  Not in the Personal Finance section of the Wall Street Journal.

Do you think a reporter would stop to ask how, after writing a, let’s say, $15,000 first year premium check on a life insurance policy, the cash surrender value was still zero?  Where do you think that money goes?  State taxes?  (yes, 1% to 3%) Regulators? (No) The insurance company?  (not yet) The life insurance agent?  Bingo.  But, no mention of that at all.  This article is about the ailing life settlement business.  The industry that did really exist five years ago.  Do you think if Ms. Tergesen was sincere she would have shown the most basic graph plotting the life settlement industry’s growth, using Conning Partner’s data?  What you would see is a tribute to American capitalism and entrepreneurial zeal.  You would see an industry providing value added and meeting customer’s needs.

Despite the tone of the Ms. Tergesen’s article, there is money to buy your life settlement out there, and Life Settlement Systems know where it is.  We know how to get you the highest price.  We are in relation with over 45 prospective purchasers.  We have buyers of your life settlement that no other broker has, so let us work for you.    In these tumuluous times, use Life Settlement Systems. Let us help you unlock the hidden value in your life insurance policy.  Call us at (212) 504-3085 or visit us on the web at www.lifesettlementsytems.com.

The business model is simple.  Convince a senior to “monetize their insurability. “  “Two years of ‘free’ insurance.”  “No risk, plus potential upside on the back end.”  And a LOT of seniors took the bait.  And they should have.  It was a good deal.  Other than giving up the ability to buy life insurance in the future and maybe a 1099 if a deal goes bad, seniors have nothing but up side.  Other than those silly little questions on the application about selling the policy or even financing it that they all conveniently ticked “NO” to.  So they had to stretch the truth just a little bit.  The salesman got at least half of the first year’s premium as commission with residuals for years to come.  And if she was shrewd enough, she could anticipate (or even lock up) making another couple points in two years when it came time to sell the policy by being the broker of record for the life settlement.  The returns to the purveyors of premium finance money was always over 20%.  If they played their cards right, added some junk fees, took a little more of the agents commissions, the returns could be twice that.  And all for a short term investment.  None of this ten and fifteen year life settlement fund stuff.  In and out in two years.

And then 21st Services updated their model (quite correctly I might add) to reflect the new 2008 VBT Tables and all of a sudden that deal that should have easily paid for two years of premiums with the hefty fees was underwater.  Not enough money to repay the principal on the loan let alone the interest.  So LE’s extended at the same time that discount rates were moving from 9%-11% to 13%-15%.  And here is the part that these clever Wall Street financiers didn’t think about.  When they took out the new policies they just assumed that the life settlement market of 2005 and 2006 would continue to be the same two years later.  Maybe even better if more capital came into the market.  But they missed the part that some would begin to be concerned about fraud or insurable interest risk.  There began to be a tiering in the market.  Financing Entities started differentiating between “good” or “clean” policies and non-recourse premium financed policies.  The market still differentiates bewteen these policies today.  “Dirty” policies have fewer bidders.  As such, the effective IRR is upper teens, a good 5% or so more than clean policies.  That is why so may premium finance entities are hurting.  So what do they do?  Wait it out.  Or at least try to.

The first thing they get to do is foreclose on the loan.  The insured, who may have up to 25% recourse on their loan, is not a happy camper.  This great deal did not go as planned.  And someone has to come up with the next month, or quarter or semi-annual payment.  So, at a time when liquidity and capital has never been in shorter supply, the capital in the premium finance business needs MORE capital.  So what do they do?  Either raise more money and pay the premiums or sell some of the best policies to generate cash to pay the premiums on the rest of the portfolio.  Again, creating a dynamic where there are more sellers than buyers.  That is why prices are lower than three months ago.  Some premium finance funds don’t have access to any more money.  They have to sell at what they know are fire sale prices.  But they have no choice.  The smart money is betting that this too will pass.  Their bet is that the cost of making another six month of premium payments is much less than they will get for the policy when they offer it for sale six months from now.  Then, the thinking goes, these congested markets will have begun to thaw.  And with that thaw, this very credible asset class will come back into favor.  Discount rates will come down from 13% to 16% and move back to the more reasonable 10%-12%.  But its a risky bet.  Right now, cash is king.  The cash used for those premium payments could be invested in some pretty distressed situations.  And it assumes that things will get better.  There is still a lot of de-leveraging left to go.  Not everyone has come clean with their mortgage, CDO, CLO, CBO and SIV losses.  But just because they did not have to mark-to-market like the investment banks and the held for sale portfolio in commercial bank, their auditors make the rounds.  The word, “impaired asset” will strike fear in the heart of many a CFO in the months to come, and just how many more premium payments these premium finance funds are going to have to make remains to be seen.

These are fascinating and turbulent times.  Times that require a knowledalble and seasoned advisor.  Please call us at Life Settlement Systems if we can help you with the sale of your life insurance policy.  There is no risk or obligation.  Every inquiry is confidential.  We’re here to help.  Just call us at (212) 504-3085 24/7.

First, few Providers have the money they buy policies with just sitting in the bank.  Most of the time it is other people’s money.  Most Providers are agents or representatives for the people or institutions with the real money:  a hedge fund in Dallas, an insurance company in New York or a private bank in Germany.  And all of them are impacted by these recent unstable market conditions.  Some more than others.

Almost every major financial institution around the world is de-leveraging, whether they want to or not.  People are now learning the difference between equity and everything else.  And the equity is taking their licks just like everybody else.  If they managed to not be invested in something that is worth less than it was last month or last year, they are biding their time in US Treasuries (we use to say cash, but not even that is safe any more).    “It’s like catching a falling knife.”  When the knife is safely on the floor, those high net worth individuals and hedge funds that survived, family offices, pension plans and endowments will come back into the market.  But for the time being they are just sitting on the sidelines waiting for all of this to settle out.

Several hedge funds that provide funding to top Providers have either suffered major losses and will close or are hording cash in anticipation of massive redemptions at the end of this quarter and the end of this year.  In a ironic twist, life settlements are suffering BECASUE they are so good.  Because they have held their value (for the most part, see below).  With losses in most asset classes (stocks, bonds, real estate and commodities) people are selling the “good stuff.”  Their selling blue chip stocks – that is why the Dow Industrial moved 400 points a day this week.  Not because Proctor & Gamble is a bad company, but because it is a very good company.  At least there is a bid for it.  The losses on the New York Stock Exchange this week is a testamony that the liquidty of this large, liquid capitial market is providing all of the sellers in the world.  If you look carefully it is not widows and orphans that are selling.  It is hedge funds who borrowed 80% of the purchase price to turbo charge their gains (leverage).  Now they have to sell.  And they are selling the good stuff, including life settlements.  Because they have to, not because they wan to.

So there are more sellers than buyers.  Hedge funds are liquidating anything they can to meet bank margin calls or investor redemptions.  The baby is going out with the bath water, but they don’t care.  They have no choice.  Smart MBA’s and Masters of the Universe who always thought of themselves as the fox and everyone else as the rabbit are getting their come uppance.  They made their fortunes by buying cheap assets – taking advantage of everyone else’s distress.  These days they are the rabbits, and it is painful.

To make matters worse, in the middle of this financial tsunami, a major player in the life settlement market 21st Service, one of the top life expectancy providers through a bomb into the middle of the market.  With no notice, 21st Services modified, again, their methodology.  The result of their changes cause their average LE (life expectancy) to extend 10% to 20% depending on the sex and age of the insured.   No warning.  Just out of the blue.  And 21st Services has done this before.  Google the words 21st Services, litigation and Coventry First whereby 21st Services settled litigation between itself and the largest Provider in the industry at the time.  Now they have gone and done it again with major consequences to the investors who had relied on them.

21st Services had in effect just cause major losses to people whose pricing models relied on their LE results.  We are aware of five portfolios whose mark-to-market losses have caused them to stop all of their buying activities and look into strategic alternatives.  We know of two hedge funds who had provided major funding to two different Providers who summarily stop funding.  The Provider had to renig on all the life settlement deals in their pipeline and ruduce their number of employees.  The exact same thing is true for another Northeast Provider.  And it could not have come at a worse time.  The confluence of the volitile markets (ie. AIG needing $121 billion loan from the Fed) and this mark down of everyone’s life settlement positions or loss of deals in agents and broker’s pipeline will cause 2008 total production and profitability to fall between 15% and 25%.

It just re-enforces why you need to work with the best professionals in the life settlement area like Life Settlement Systems.  Please feel free to call us at (212) 504-3085 if we can be of any help getting your deal done.

Life expectancy

Law firms, accounting firms, partnerships of all kinds come together to run some sort of business enterprise.  These service providers/entrepreneurs combine their talents and resources to build business enterprises and maybe even legacies.  But what if someone dies early?  That heart attack at age 43 on the squash court or the cancer that overcomes.  As if the trauma of losing a valued partner and friend is not enough, but at this time of mourning the surviving operators have to deal with what to do with the now deceased’s equity interest.  His or her partnership interest is passed to his heirs through his will.

So now the wife (or husband) owns 25% of the law firm.  Do the remaining partners want him (her) voting those shares?  Probably not.  So to mutually protect themselves, they purchase an insurance policy for the expected value of that partnership share and use the proceeds of the life insurance policy to purchase out the deceased partner’s interest.

However, like all life insurance policies, most businesses owners who purchase these policies never die before retirement.  At 65 years of age they get the gold watch and retirement party and let the life insurance policy they have paid for decades lapse.  This can be a BIG mistake.

In the past, these people have had only two options: lapse the policy with nothing to show for the premiums that they have paid, or, if the policy has cash value, a business could surrender it for the cash value, often for a lot less than the premiums paid into the policy. Now there is a third alternative: a life settlement.

A life settlement is a transaction where the owner of an unneeded life insurance policy sells the policy for an amount greater than the cash surrender value of the policy. A life insurance policy is an asset that can be sold just like your stocks, bonds or car.  Even though most key man or business life insurance is term insurance, it most likely can be converted to some form of permanent (whole life, universal) life insurance.  Permanent insurance is much easier to sell in the senior life settlement market.

Generally, the insured needs to be at least age 65 years.  Life Settlement Systems is in the business of helping owners find buyers for their policies.  This is a valuable alternative to any individual with an un-needed or un-wanted life insurance policy, not just businesses that own life insurance policies they no longer need.

Whether your business owns a term, universal, or whole life insurance policy, you should look into selling it instead of just letting it lapse or surrendering it.  A life settlement can be a very lucrative alternative. Before entering into a life settlement, you should consult a financial professional like your attorney and/or your CPA. Also make sure you deal with a licensed, insured broker.

Please call us.  We’re here to help.

First there are a lot of them.  According to the Bank for International Settlements (BIS) there is currently over $55 trillion notional (face) amount in this shadow banking system.  That is more than the GDP of every nation in the world combined.

Now we can debate the merits of insurable interest, and I will at another time.  But the idea that, as a matter of public policy, we don’t want people “betting” on things they have no direct interest in seems like a good one.  As we review regulatory policy going forward, I think we should consider treating CDS for what they are – insurance.  And as insurance, we might want to consider regulating it like we do all other kinds of insurance.  In particular we should look for the implicit leverage embedded in CDS, for it was leverage (too much of it) that will be found to be at the heart of this current financial conflagration.

I am aware that much of CDS are done with off shore entities.  So be it, but if you want the benefit of America’s court system, then I recommend we seriously consider linking the going long or short of CDS with someone having an economic interest in the underlying credit.  Otherwise, the purchase and sale of CDS might be more akin to plain gambling, and we have seen the results in financial stocks when going “naked short” is linked to a lower stock price, then to downgrades of debt ratings by rating agencies in a downward death spiral for the company unlucky enough to be the prey in this vicious game.

Let us learn from the major changes in our currently over-leveraged global financial system and consider applying some of the same insurable interest requirements to CDS that we apply to mom-and-pop life insurance policies.

This Life Settlement News & Information blog is a resource of Life Settlement Systems to assist owners (and beneficiaries) of life insurance whose needs have changed and are considering selling their life insurance policy.  Stop making those burdensome premium payments.  And don’t surrender your policy to the insurance company for its cash surrender value until you see if some one wants to buy it for more than your insurance company is willing to pay.

This blog provides information for those who have life insurance they may not need any more.  People whose circumstances have changed  — the children are grown, the mortgage is paid off, or you just need the cash.  The information provided herein is intended to assist a seller and their financial advisers (accountants, lawyers, financial planners, family offices and stock brokers), especially insurance agents as to whether a life settlement is the best solution.

There is over $18 trillion of in force life insurance in the United States today.  Let us help you get the most out of an asset that 89% of insured will never receive the death benefit from because they either let their policy lapse or surrender it to their insurance company.  There is a better alternative – sell your policy for cash!