Industry ‘Not Even Piercing’ Potential Of Life Settlements: Speaker

DALLAS -- The life settlement industry has been on a steady growth trend for some time now, and market developments point to that trend continuing.

For starters, the size of the potential market should encourage agents and brokers to give life settlements a look, said Michael Coben, chief distribution and business development officer with Lighthouse Life, based outside Philadelphia.

Coben is leading a session today on life settlements at the NAILBA Annual Meeting. He will focus on expanding the life settlement market to include policies as low as $100,000.

For the most part, the industry has tended to focus life settlement plans on high-net-worth clients, he said. But that is changing, he added, and should keep changing.

"Seniors get to these ages where maybe they didn’t plan properly, or unfortunately, have been dealt with some circumstances that have changed their plan,"Coben said. "They can fortunately look at their insurance policy as a source of capital to fend off the concerns that are immediate."

According to data from Conning, about $200 billion worth of life insurance owned by policyholders ages 65 and older gets surrendered annually. Among policies of $100,000 to $1 million, it's $85 billion surrendered, Coben said.

Market Share To Be Had

The life settlement industry recorded about $3.8 billion in 2018 transactions.

“What we’re saying is that $85 billion, that’s the needs-based part of the market," Coben said. “We’re still not even piercing the market’s potential in terms of offering value to consumers."

Life insurance is personal property, so policyholders can sell it just like any other asset they own. When they decide to sell the policy to a third party — rather than surrendering it to the insurance company — they get more than the cash value, but less than the death benefit amount. The buyer of the policy takes on all future premiums and receives the death benefit when your client dies.

In order to qualify for a life settlement, a policyholder must be 65 or older with a life insurance policy that has a death benefit of at least $100,000, according to the Life Insurance Settlement Association.

The amount of their potential settlement will depend on several factors, including the death benefit, the annual premiums that the buyer will be required to pay, and the number of years the buyer can expect to continue paying those premiums (the insured’s life expectancy). But on average, a life settlement yields seniors five to seven times the amount of the policy's cash surrender value.

To date, 43 states have life settlement regulations, which serves to legitimize it as a planning tool, Coben said. In fact, the industry push to strong best-interest standards could be a big boost to life settlements if it turns out to be the best option for the client.

"The application of our industry has come a long ways from just a transaction to a problem-solving tool," Coben said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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