A life settlement is a transaction whereby an investor, with no insurable interest, purchases the rights to a life insurance policy with the intent of keeping the policy in-force until the insured's death, and then collects the death benefit. An ideal life settlement policy is one which insures someone with a short life expectancy -- namely a senior. In exchange for the ownership of the policy the insured receives an amount of cash, usually a percentage of the death benefit of the policy. The sale of a life insurance policy, a.k.a. life settlement, is almost always brokered by a life settlement broker and the broker earns a commission on the sale of the policy.
In the early 2000's investors quickly realized the potential of tremendous profits in buying life insurance policies. Thus the stranger owned life insurance market began. Stranger owned life insurance (also referred to as STOLI) is where the settlement of the policy is arranged before the life insurance policy is even issued, and the funding of the policy comes, indirectly, from the ultimate buyer of the policy. Insurance agents solicited seniors across the country to apply for life insurance and receive a cash payment for the use of their insurability. The funding of the stranger owned life settlement most often came in the form of a non-recourse loan that could expire, with no cost to the insured, after the policy passed the contestability period of two years.
Some of the issues that have arisen from the life settlement market are; life insurance companies quickly began prohibiting the purchase of a policy if it was bought with the intent of selling the policy, the capital available to buy policies has decreased, policies have become harder to sell, in some cases there is no market for a policy, and promises that were intially made to the insured have not come through. Each transaction needs to be evaluated based on many factors to determine the reasonableness of the transaction. These factors include the year the policy was applied for, the age and health of the insured, the structure of the financing for the life insurance policy, the settlement received by the insured, disclosures and obligations.
If you have a dispute involving a life settlement or a stranger owned life insurance policy I can evaluate the transaction, explain the transaction, and offer solid case support.
