Plaintiffs' Personal Injury Law Firm

Life Settlement Securities

While the U.S. is still hurting from the mortgage meltdown, investment firms are offering a contemporary approach to investors in the form of life settlement securities. This is by no means a new method of investing. However, only recently have life settlement securities become a focal point for both investors and brokerage firms. With $26 trillion dollars worth of life insurance policies in force in the United States, the impact on the economy could be significant.

 Life settlements are life insurance policies sold by the elderly and ill for cash. Investment banking firms securitize these policies by packaging them together into bonds. Firms will then resell these bonds to investors who will, in turn, receive the payouts.  The essence is that the seller of the rights gets quick funds, and the buyer of the insurance policy will get an even larger amount upon the death of the insured.

Of course, not everyone who owns a life insurance policy will want to sell it. However, industry insiders acknowledge that even if a small portion of policyholders do decide to sell, the market could be worth nearly $500 billion dollars. Consider the implications this might have on our destabilized economy. Dealogic, a firm that tracks financial data, revealed that life securities could help Wall Street offset the loss of revenue from the collapse of the residential mortgage securities market from a peak of $941 billion in 2005 to $169 billion so far this year.         

As seniors face losses in income and value because of declines in stocks and home prices, many are not able to maintain their life policies. Life settlements will pay policyholders an average of 300-500% more than the cash surrender value of the policy. Since almost 9 of 10 life insurance policies issued are lapsed or are surrendered, according to a leading international actuarial firm, life settlements are a valuable option for seniors.

As this information is shared, interest in life settlements will grow. Washington State has already passed a law that requires life insurance companies to advise seniors that life settlement is an option to the lapse or surrender of their life insurance policies. Currently, more states are considering taking similar action. Perhaps even more important is that the U.S. life settlement market is sparking international interest among European institutions. Life securities are described as very attractive because of the potential for strong returns backed by investment grade (A- or better) credit quality. Further, these securities are uncorrelated to other investment classes because the risks are much easier to estimate and they are not exposed to broader economic risks. However, analysts are concerned that life settlement securitization could wind up being expensive for consumers because insurance companies may be forced to raise premiums. 

If you think that you may have become victim to a financial loss due to the negligence of a financial investment firm, please give us a call at Napoli Bern Ripka, 1-888-LAW IN NY and we will be happy to provide you with a free consultation.