What are some of the reasons a person sells their policy?
Most people acquire life insurance early in their careers as a means of protecting their income and family in the event of an unexpected event. However, over time, changes in people’s circumstances often mean that individuals want access to the value “locked-in” their life insurance policy prior to their death. In the USA people are becoming increasingly aware that their life insurance policy may qualify for a Life Settlement. These changing circumstances could include the following:
- The insured may have outlived the beneficiaries the policy was originally intended to protect.
- Premiums may have become unaffordable and unless sold as a Life Settlement, the insured may have to let the policy lapse.
- The insured may be financially secure and have no further need for the policy.
- The insured may wish to make a gift of the monetary value of the policy while they are still alive.
- The insured may sell the policy for estate planning purposes.
- The insured is considering whether or not to lapse or surrender the policy, for its cash surrender value.
- In circumstances where the alternative for the insured is to let the policy lapse and lose a potentially large portion of the premiums, which have been paid on the policy, a Life Settlement is an attractive option.
How does Crown determine if a policy is targeted for purchase?
Crown’s parameters for doing business are as follows: Average age of the group or individual over 80years old, Life expectancy less than 84 months, policy to generate a minimum IRR of 14%. Of course the policy has to be beyond the 2-year contestability period and issued in the US. The life insured and the company must also be located in the US. If all these parameters are met then we look at the policy however management makes the final decision.
Why invest in Life Settlement Policies through Crown Alliance?
The Returns from Life Policy investments (through Life Settlements) are generally not correlated with other investment markets (see below).
- Uncorrelated Returns. This means that the performance of the Life Policies will be based on the characteristics of the pool of the insured lives, and not on the performance of traditional markets, such as the stock market, the property market and the interest rate market.
- Lower volatility of returns
- Benefit amount assured. This means the benefit payable on each policy is contractually fixed at the time of purchase.
- Sizeable and growing asset class
- Potential for higher returns
- Improved mortality data accuracy
- Non-contestability – Crown only purchases Life Policies that have a non-contestability provision. Normally the Contestability * Period is the first 2 years that the policy is in force, so we don’t buy policies until it has passed that time.
- Increased Regulation – adding to strength and stability in the industry.
- Strength of the underlying asset is highly rated *The risk of life extension in individual policies can be mitigated – by owning an actuarially significant portfolio of policies.