History Of The Life Settlement Industry.

May 21, 2020 Dan Penning

In 1911, the U.S. The Supreme Court ruled in the case of Grigsby v Russell that a life insurance policy is a personal asset and as such could be assigned or sold by the policyholder to a third party for cash.

In spite of the aforementioned court holding, the sale of life insurance policies remained a seldom used practice through several decades thereafter.

In the 1980’s largely as a result of the Aids epidemic, many terminally ill patients in need of money to pay for medical care helped establish the secondary market for the sale and purchase of life insurance policies based on Viatical Settlements. A viatical settlement is different from a life settlement in that in order to qualify for a viatical settlement a policyholder needs to show that they are terminally ill or suffer from a permanent chronic illness.Although the process is different, viatical settlements helped identify and solidify the option to sell policies in financial markets.

The evolution of life settlements became more popular through the late 1990’s and into the next century. Seniors in America increasingly discovered life insurance settlements as an option to sell unneeded or unwanted policies. Life insurance settlements became a preferred option to a policyholder otherwise letting a policy lapse or taking a cash surrender.

In 2008 and 2009, as a result of the financial crisis and corresponding recession, policyholders settled(sold) approximately 8 billion worth of U.S. life insurance. A survey at the time showed that about 80% of seniors owned some type of life insurance but over half were unaware of their ability to sell their policies for cash.

As the years passed various developments occurred increasing the markets for life insurance settlements. For instance in 2013, Berkshire Hathaway, the publicly owned investment company founded by Warren Buffet purchased over 300 million (face value) in life insurance policies. Also, studies began to confirm that the internal rates of return for life insurance settlement transactions conducted in 2014 were in the high teens.

In the current day, life insurance settlements continue to be attractive investment opportunities for institutional investors, private equity groups and other large portfolio managers. A life insurance settlement is essentially treated like a zero coupon bond for investment purposes.

As a result, your life insurance policy has value and a market where investors are willing to pay several multiples of what a policyholder would receive from a simple cash surrender.