Life Expectancy Providers
Life Expectancy Providers (LEPs) are specialized independent companies that issue life expectancy reports (LERs) that estimate the life expectancy (LE) of an individual (typically the insured individual on whose life a life insurance policy involved in a life settlement is based). Life expectancies are not a prediction of how long an individual will live, but rather are the average survival time amongst a particular risk cohort. Risk cohorts are typically grouped by age, gender, smoking, and relative health/morbidity. LE is a key component in the pricing of a life settlement.
LEPs are typically made up of actuaries and medical underwriters who utilize actuarial models based on published or proprietary mortality (life) tables and medical underwriting based on various debits/credits for various morbidity characteristics similar to the medical underwriting performed by life insurance company underwriters and reinsurance underwriters. Until recently, the most commonly used mortality table was the 2001 Valuation Basic Table (VBT) published by the Society of Actuaries based on data supplied by contributing life insurance carriers. In 2008, the Society of Actuaries published a new table, the 2008 VBT, that is based on 695,000 lives representing $7.4 Trillion in death benefits which is almost 3 times more lives than the former 2001 VBT. Included with 2008 VBT are relative risk tables (RR Tables) that separate insured lives into various underwriting categories based on the health/morbidity of the insured at the time the policy was issued. Note that no impaired lives are included in any of the RR tables, but rather were designed for companies that subdivide their standard policies into more than one sub-class. Most LEPs have factored in the experience data underlying the 2008 VBT, as well as their own experience data and other factors, as a basis for their mortality tables. This resulted in a significant lengthening of average LEs in the fourth quarter of 2008 for some LEPs. All major LEPs have continued the practice of developing and using proprietary and confidential mortality tables based on extensive medical research and mortality experience. One new LEP has adopted the use of the 2008 VBT RR Tables as a replacement for proprietary multipliers, despite the fact that Relative Risk Factors are in their infancy and not designed for impaired life nor life settlement underwriting.
Typically the insured individual whose life insurance policy is involved in a life settlement review
Life settlement investors are known as financing entities because they are providing the capital or financing for life settlement transactions (the purchase of a life insurance policy). Life settlement investors may use their own capital to purchase the policies or may raise the capital from a wide range of investors through a variety of structures. The life settlement provider is the entity that enters into the transaction with the policyowner and pays the policyowner when the life settlement transaction closes. In most cases, the life settlement provider has a written agreement with the life settlement investor to provide the life settlement provider with the funds needed to acquire the policy. In this scenario, the life settlement investor is effectively the ultimate funder of the secondary market transaction. However, in some life settlement transactions, the life settlement provider is also the investor; the provider uses its own capital to purchase the policy for its own portfolio.
Generally, a life settlement broker is a person who, for compensation, solicits, negotiates, or offers to solicit or negotiate, a life settlement contract. In most states, a person must be licensed to act as a life settlement broker and must take continuing education courses.
A life settlement broker, in exchange for a fee, will shop a policy to multiple providers, much as a real estate broker solicits multiple offers for one’s home. While it is the broker’s duty to collect bids, it is still incumbent on the advisor to help the client evaluate the offers against a number of criteria including offer price, stability of funding, privacy provisions, net yield after commissions, and more.
As part of the purchase transaction the investor assumes responsibility for paying all future premiums required to keep the policy inforce.
Compensation arrangements vary significantly and should be fully disclosed and understood to determine if engaging a broker will benefit the client.
In states that regulate life settlements, there are laws pertaining to procedure, privacy, licensing, disclosure, and reporting, which if violated, may subject the broker to penalties.
Life settlement providers serve as the purchaser in a life settlement transaction and are responsible for paying the client a cash sum greater than the policy’s cash surrender value. The top providers in the industry fund many transactions each year and hold the seller’s policy as a confidential portfolio asset. They are experienced in the analysis and valuation of large-face-amount policies and work directly with advisors to develop transactions that are customized to a client’s particular situation. They have in-house compliance departments to carefully review transactions and, most importantly, they are backed by institutional funds.
Life Settlement providers must be licensed in the state where the policy owner resides. Approximately 41 states have regulations in place regarding the sale of life insurance policies to third parties.
Will A Life Insurance Settlement Affect My Ability To Receive Federal or State Aid?
The proceeds from a life insurance settlement may impact certain means-based entitlement programs, such as Medicaid. Other programs may not be affected. Hope Settlements urges all potential sellers to consult their legal advisors or financial planners as well as their state’s Department of Health and Human Services for specific guidance in this area.
Are the proceeds from a Life Insurance Settlement subject to taxation?
In August of 1996, Congress passed legislation to eliminate federal income tax on the proceeds of Viatical Settlements and accelerated death benefits. Certain restrictions do apply and are based on the insured being defined as terminally ill.
On a Life or Senior Settlement: Your tax advisor can work with you to review the basis in the policy, the cash value, and the amount of your settlement to determine the tax liability, if any. Hope Settlements suggest that you first consult with your tax advisor for more details regarding your specific case. Hope Settlements does not give tax advice and strongly recommends that policy owners consult a tax advisor on such tax issues. Hope Settlements will work with policyholders and their financial advisors to help structure life settlements to best meet their financial and estate planning needs.
Is The Life Insurance Settlement Industry Regulated?
Yes, is the short answer and we wish it was just that easy. The question is hard to answer because regulation is on a state-by-state basis and currently has no Federal oversight. For instance, some states regulate Viatical Settlements, but do not regulate Life Settlements. Other states may define both Viatical and Life Settlements as one and the same, and have one body of law to cover both categories. Still other states will have separate bodies of law for Viatical and Life Settlements. Some states don’t regulate it at all. Currently, regulation, or proposed regulation, exists in most states. Also, the National Association of Insurance Commissioners (NAIC) has written a Model Act. (CLICK HERE) The purpose of the Model Act is to encourage states to adopt uniform standards to regulate the Life Insurance Settlement industry. Hope Settlements encourages uniform regulation of the Life Insurance Settlement industry, and has built a network of experienced life insurance agents who are licensed in each state that is regulated and requires a license.
The majority of all states have adopted some from of the NAIC Model Act and do regulate the Viatical and Life Settlement industry. Please contact your resident states Department of Insurance or Division Of State Government that regulates the insurance industry and request a copy of the Model Act they have adopted. (CLICK HERE TO CONTACT YOUR STATES).
Do my beneficiaries enter into the process?
Any person who has been listed as a beneficiary of the policy, must sign a release and waive all current and future rights in the proceeds from your policy.
What about future premiums on my policy?
Your responsibility ends with the sale of the policy. You pay no more premiums, except in the case of Federal Employees’ Government Life Insurance (FEGLI). Federal employees and annuitants are required by the government to continue paying the premiums even after assigning their coverage.
What about my confidentiality? Who will be contacted during the process?
Only your primary physician, your insurance company or benefits administrator on a group policy, or anyone you specifically authorize. We protect your privacy and guarantee that Hope Settlements will never provide list of names or social security numbers to government or private agencies.
What if I change my mind after I sell my policy?
Hope Settlements offers a 15-day rescission period in most states. As the previous policy owner, you can change your mind and get the policy transferred back to you within fifteen days after receiving your funds.
(rescission periods can vary from state to state, and all sellers will be properly notified in writing)
Can I work with you through my advisor?
Yes, we can work with you directly or you’re trusted financial advisor, personal attorney, insurance agent, or even a family member if you choose.
What size policies qualify for Hope Settlements?
Hope Settlements will assist all terminally ill patients and seniors equally, no matter how small or large the policy may be, ranging from $25,000 to $25,000,000.
How long does it take to complete the transaction from start to finish?
Our goal is to complete most transactions within 30-45 days. The most significant factor is the gathering of the insured’s medical records. Sometimes, obtaining a copy of the insurance policy along with premium illustrations and policy data from the insurance company, could slow down the process. We will work diligently to expedite the process and will keep in constant contact with the seller or seller’s representative throughout the entire process.
Do I need to take a medical exam?
No. Hope Settlements will contact your physicians for existing medical information.
Is there any cost or obligation to receive offers on my policy?
No. With Hope Settlements, there is never a cost or obligation to the seller. In fact, you will not pay any application fees, underwriting charges, or medical review costs to determine if your policy can be sold.
What Types of Policies can be purchased?
Most all policies can qualify
- Term Insurance (convertible)
- Group Policies (convertible)
- Whole Life
- Universal Life
- Joint Survivor (2nd to die)
- Key Man Policies
How much can I expect to receive and how do you determine my policies value?
There are many factors that determine the offer amounts:
- Age of insured
- Insured’s Health
- Type of Policy
- Policy Size
- The general rule is that the (LE) Life Expectancy, and future premiums expense are the primary factors that determine the amount of the Life Insurance Settlement offer.
|39 Female||54 Male||79 Male||82 Female|
|Ovarian Cancer||Lung Cancer||Heart Disease||Alzheimer’s Disease|
|$350,000 Policy||$55,000 Policy||$1,000,000 Policy||$5,000,000 Policy|
|Hope Settlement||Hope Settlement||Hope Settlement||Hope Settlement|
|Paid $262,500||Paid $30,800||Paid $352,000||Paid $1,750,000|
How Do I Apply?
The process of selling a life insurance policy is easy and non-threatening. There are no invasive interviews or medical exams to take. We do require a completed application that is tailored to comply with your states regulations. With the applicant’s permission, our Family Service Counselor will assist you through the entire process and even gather medical records and insurance information on your behalf to begin underwriting the case. Hope Settlements also has for your convenience locally appointed and licensed insurance agents that work as volunteer service providers and can visit you in person by appointment.
Are there alternatives to selling my policy?
Yes, and this is one of the first things that your Hope Settlements Family Service Counselor will explore and discuss with you. There are other possible options. First, you may be able to borrow against your life insurance policy. Loans, can often be a complicated process and usually the money advanced is significantly less than the amount needed. Second, either your policy or insurer may provide what is called an accelerated benefits option. Due to the rapid growth of the Life Insurance Settlement industry over the past 2 decades, many insurances companies are now offering an Accelerated Death Benefit (ADB) rider in newly issued policies. This provision if found in your policy allows the insured to receive some of his or her death benefits right away, if they meet the eligibility requirements. Thirdly, you may be able to cash out your policy if it has any cash surrender value, but make sure you obtain a Hope Settlement offer first, because our offers are usually 2-10 x’s higher than the cash surrender value. Some of the earliest Life Insurance Settlements ever recorded, were between a friend and family member–borrowing money in exchange for being named as the irrevocable beneficiary of the policy, and this could be another consideration.
Hope Settlements, while extremely wise for many families, are not always the best alternative.