Background
Life is full of change which is why making long term financial decision are tough, especially when it comes to life insurance. Purchased for protection and/or investment purposes, life insurance serves a valuable and necessary service, but is often restrictive when needs change, that is until the advent of the secondary life insurance market. Previously, policy owners faced limited options when the original purpose for their life insurance no longer existed. They could surrender their policy for the life insurance company’s pre—determined (if any) cash value, or lapse the policy to rid themselves of the burden of ongoing premiums. With the secondary life insurance market another option is now available, one that is causing a wave of policy owners and the financial service professionals who serve them to look at life insurance in a new light.
The secondary life insurance market traces its roots back to 1911, when the Supreme Court ruled in Grigsby v. Russell that life insurance is an asset like a house or a car that can accumulate in value and be bought or sold. Unfortunately few options existed for policy owners with unneeded or unwanted life insurance prior to the 1990’s, when the market as we know it first began to emerge.
The early beginnings of the market were filled with excitement, anticipation, and uncertainty. From large multi—national corporations to small regional proprietorships, many saw the opportunity and value to senior age consumers and entered the industry. Because of this wide spectrum and infancy of the industry, standards were developed by the National Association of Insurance Commissioners (NAIC) to promote and govern model behavior. These standards known as the Viatical Settlement Model Act are still in use, and have served as a foundation for laws governing the secondary life insurance market in a majority of states.
The industry today is comprised of policy owners, sellers, agents, advisors, brokers, providers, institutional investors, and ancillary companies that provide underwriting, escrow, or other related activities. Although the lines are blurring between the roles of each, the industry is typically connected in the following manner:
A policy owner after consultation with their trusted advisor decides to sell their unneeded or unwanted life insurance. The advisor then contacts a broker or provider, who utilizes various ancillary companies to facilitate the sale of a life insurance policy, based on the criteria set forth by institutional investors.
There are many reasons why someone would consider selling a life insurance policy, but most center on changing needs such as: estate planning, rising premiums, medical or long term care, and death of a spouse or beneficiary. Changing needs also impacts corporations as well, where life insurance purchased for use in compensation packages or to protect key—persons becomes unneeded or unwanted due to retirement, mergers, or acquisitions.
How does selling a life insurance policy work? A life settlement is a lump sum cash settlement paid to a life insurance policy owner in exchange for contract ownership rights. The purchaser becomes the new owner, pays ongoing premiums, and collects future benefits.
Overall this emerging asset class has moved from an introductory stage to a growth stage in its market lifecycle. It has become more sophisticated with stringent business standards and greater emphasis on transparent transactions, due to the increased attention from institutional investors and rating agencies like Standard and Poor’s and the Scope Group.
The many benefits of the secondary life insurance market continue to be discovered. From providing sellers with flexibility and financial resources to meet changing needs, to offering brokers and investors new and innovative financial solutions and investment opportunities that significantly impact their ROI and bottom line.
As market leader, Maple Life Financial has been an active participant in the development of our industry. We’re poised and uniquely positioned to help an ever—growing number of seniors and the financial service professionals who serve them, discover the benefits and value offered by the secondary life insurance market.
We are one of the top providers due to our high standards, customer service, and sound business practices.