Negative life settlement stories focus on the rare greed of a few individuals or firms. They do not accurately reflect all of the good that comes when the elderly transfer life insurance ownership to brokers or investors. The facts below show that all parties benefit from a well-structured life insurance settlement.

Seniors Get Retirement Cash

A long-range estate-planning tool like life insurance can quickly become outdated. Financial needs change from year to year, especially when a spouse gets sick or children grow up to do well on their own. A policy that made sense 30 years ago may now just be sucking funds away from more important activities.

Life settlements give older adults the opportunity to dispose of insurance policies that they no longer need or can no longer afford to maintain. They can use the lump-sum settlement for any purpose, including long-term care costs, daily living expenses, travel and general spending. Instead of giving the policy back to the insurer for pennies on the dollar, seniors can get up to eight times more money through the settlement process. They also escape the hefty premiums, which can drain thousands out of a bank account each year.

Investors Get Stable Returns

Without the chance to make a profit, investors would never be willing to pay seniors more than the cash value of a policy. Investors find life insurance settlements so attractive because they supply exceptional returns for only a moderate amount of risk. With an outlay of as little as $20,000, qualified investors can double their money within a 10- to 15-year timespan. They can see estimated annual returns of eight to 10 percent or more after fees. Institutional and independent investors like the low-risk exposure. Life settlement proceeds do not rise and fall based on the whims of political powers, stock markets, interest rates or foreign unrest.

Brokers Get Intermediary Fees

Settlement brokers take commissions for connecting policy sellers with investment buyers. These brokers are not just middlemen, however. They invest in technologies that improve actuarial analysis and communication flows. Many also take over the paying of premiums until a policy has matured. Life settlement brokers gain long-term relationships with clients at the selling and buying ends of the spectrum.

Insurers Get Continuous Premiums

Under a life settlement, insurance companies continue to collect premiums until the insured passes away. This timeline provides up to 20 years of extra revenue that the insurer would not otherwise receive. If the owner had simply allowed the policy to lapse, the insurer would have been left with no incoming cash flow. At the same time, a surrender would actually have caused the insurer to owe money.

Even though each life settlement deal has different characteristics, the transaction always ends with four satisfied parties. So who benefits from a life insurance settlement? Everyone does.

Life Settlement Brokers Share High-Return Investments

Even though life insurance settlements have been around for more than 20 years, they have only recently received exposure to the general public. Now independent, qualified investors can see returns that had once been the bread-and-butter of investment banks and institutional funds. The rapid growth in the industry means that more opportunities can be expected over the next decade.

Basics of Life Settlement Transactions

The basic life settlement agreement involves five parties: the insurance company, the policy owner, the insured, the settlement broker and the investor. Here’s how the process works:

1. The policy owner sells the contract ownership and beneficiary rights to a brokerage company.
2. The broker sells shares of one or more policies to institutional and independent investors.
3. The broker or the investor continues to pay life insurance premiums, depending on how the deal has been structured.
4. The insured, who may also be the previous policy owner, passes away.
5. The insurance company pays the face value to the broker as beneficiary.
    
6. The life settlement broker pays investors based on their fractional beneficial interests in the policy.

Settlement deals are relatively easy to set up, but they require a long-term investment horizon. Life settlements typically reach maturity within 10 to 15 years, although the payoff may come much sooner or much later.

Benefits of Senior Settlement Investments

Life settlements, or senior settlements, offer substantial benefits for the right investor. These include:

Fixed Returns

Life insurance settlements supply a fixed payout based on the policy's face value. Because they carry higher risks than bonds or fixed income accounts, the anticipated annual rate of return is also higher. Investors often see capital growth rates of five to 10 percent after fees. If the investment reaches maturity sooner than expected, rates can top 18 percent or more.

Diversified Assets

Settlement agreements are particularly attractive because they operate independently of stock exchanges, interest rates and currency valuations. They provide an excellent opportunity to diversify a portfolio and still earn reasonable returns.

Limited Risks

Experienced life settlement brokers take steps to reduce or eliminate the most common investor risks. Some of the preventative actions taken in each area include:

• Political whims: Life settlement agreements have been regulated in 90 percent of markets throughout the United States. The contracts typically fall under the purview of the state's securities board or banking division. Legislative protections have been passed in 42 states and Puerto Rico.

• Insurer collapse: Brokers can choose to select only policies that have been backed by a financially stable, top-rated insurer.

• Policy lapse: Proven underwriting standards ensure that premiums are paid for the life of the insured.

• Longevity: Advanced actuarial models have improved the life settlement industry's ability to predict how long a person with certain characteristics will live. At the same time, this number can never be guaranteed.

• Contestability: Before policies can be purchased, they must be in force for a minimum of two years. This waiting period staves off stranger-originated life insurance transactions, suicide clauses and material misrepresentation clauses. In addition, many brokers ask heirs to acknowledge the transaction and relinquish their rights to challenge after death.

Nearly $35 billion worth of life settlement contracts are still outstanding, and more are being written each day. For people who understand the basics of these transactions and are willing to assume the risks, the future upside can be substantial. A qualified life insurance settlement broker can sit down with potential investors and discuss the newest opportunities.

LISA Plans for Another 20 Years in Life Settlement Industry

The world's largest life settlement trade organization is celebrating a monumental anniversary. The Life Insurance Settlement Association's 20th Annual Spring Life Settlement Conference will combine a look back at the industry's rich past with innovative perspectives on the future. Even though LISA has been around for two decades, life settlements have a much longer history. Speakers will address hot-button issues, including the topics below.

Customers and Policies

The first life settlements occurred in the late 1980s as a type of cash advance for terminally ill AIDS patients. Over the next decade, settlements began to include seniors who were not necessarily terminally ill but did suffer from serious diseases. The face value of the average policy had been $2.2 million. Today's life insurance settlements also focus on elderly adults with chronic or debilitating illnesses. While settlement companies have traditionally shunned policies worth less than $500,000, advances in actuarial modeling have made even $100,000 policies more desirable.

Regulations and Oversight

The senior settlement industry was once known as the "Wild West" due to the lack of sufficient regulatory control at the time. Some states oversaw settlement transactions as securities while others lumped them into the same category as life insurance. Unscrupulous brokers gave seniors cash or gifts to set up insurance contracts. Some so-called brokers even trapped seniors in unethical financing deals so they would have no choice but to sell their new policies.

Today, 42 states plus Puerto Rico have helped to kick out the con artists and transform the life settlement industry into a regulated environment. Stranger Owned Life Insurance, or STOLI, transactions have been outlawed. New developments continue to come out of the National Conference of Insurance Legislators, the National Association of Insurance Commissioners and other organizations. Seniors, investors and life settlement companies have all gained peace of mind. All parties can make informed decisions without worrying about rampant fraud or deception.

Opportunities and Growth

LISA members continue to see exciting developments in viatical and non-viatical life settlements:

• Texas has become the first state to legislate Medicaid life settlements. Older adults can sell their life policies for more than the surrender value, keep the proceeds in a healthcare trust and still be treated as private payers with regard to long-term care expenses. New York, New Jersey and Florida are considering similar laws.

• Actuarial Standards of Practice Number 48 lends consistency to life settlement mortality calculations. The guideline helps to define actual-to-expected death ratios across different categories and time periods.

• Hybrid insurance contracts, unsecured loans and long-term care benefit riders may help more people keep their policies, but they also provide opportunities for innovation in the settlement industry.

• Public education campaigns, industry collaboration and better customer relationships may provide the keys to increasing awareness about life insurance settlement options.

As always, LISA's Spring Life Settlement Conference will be fun and informative. Guests can take advantage of meet-and-greets and cocktail receptions to make new acquaintances and strengthen old relationships. This year's keynote speaker will be Senator Bob Casey of Pennsylvania, a strong advocate of fair life settlement legislation at the federal level. The 2014 conference will be held April 30 through May 2 at the Marriott Wardman Park in Washington, D.C.

Pacific West Capital Group Says Life Settlements Industry Has Evolved

Pacific West Capital Group has witnessed the evolution of the life settlements industry. Viatical settlements preceded life settlements. Viatical settlements began in the 1980s when terminally ill life insurance owners were offered the opportunity to sell their insurance policies. When the former owner of the policy died, the purchaser received the insurance proceeds as the beneficiary of the policy.

The concept of viatical and life settlements are the same with the previous policy owner and purchaser of the policy exchanging money for ownership and beneficiary interest. The primary difference between the two transactions is that life settlements are when the insured is of an advanced age, rather than suffering from a terminal illness.

President of Pacific West Capital Group Featured in News

One man's pioneering efforts have turned him into a spokesperson for the life settlement industry. Andrew B Calhoun, President and CEO of Pacific West Capital Group, talked with Fox News Radio and Fred Thompson's Inside Business about his experiences in the secondary insurance market. During the interviews, Calhoun gives specifics about life insurance settlements and explains how these transactions benefit both the insured persons and the investors. Since 2004, Calhoun has led the Los Angeles-based life settlement facilitator, Pacific West Capital Group. The company's integrity and professionalism have earned the highest A+ rating from the Better Business Bureau.

Pacific West Capital Group Speaks Out Against STOLI

Opportunistic brokers have been taking advantage of the elderly ever since they realized extra money could be made. Pacific West Capital Group stands firmly against unethical practices and believes that customer trust is more important than personal profit. Pacific West Capital does not take part in STOLI transactions, which are illegal. In these scenarios, a third-party stranger entices a senior to take out a life policy and then sell it for an unfair price. Pacific West Capital Group reviews all policies to ensure they comply with California life settlement regulations. In addition, the firm adheres to the professional standards set by the Life Insurance Settlement Association.

A History Of The Life Settlement Industry

Although life settlements are relatively new, they didn't simply pop up out of nowhere. In this article Pacific West Capital Group reviews the 100-year history that has led to the modern life settlement.

It All Began With Grigsby v. Russell

In 1911, a man named John Burchard needed a surgery he could not afford. He offered to sell his life insurance policy to his physician, Dr. A. Grigsby. Dr. Grigsby would become the beneficiary of the policy in return for $100 to pay for the surgery, and the promise the doctor would maintain the premiums.

After Mr. Burchard died, Dr. Grigsby tried to collect on the policy but was stopped by R. Russell, the executor of Mr. Burchard's estate. The case eventually went to the U.S. Supreme Court where it was ruled that the transaction was legal. This is the first recorded case of what was later dubbed a viatical settlement, the sale of a life insurance policy by a terminally ill policyholder.

The AIDS Crisis

Viatical settlements were rare over the next 70+ years. Terminally ill patients usually needed their policies to take care of their survivors, and couldn't afford to sell them just to cover short-term medical expenses. That changed in the 1980s when AIDS swept through the United States. Most of the patients were gay men who didn't have children, the traditional beneficiaries of life insurance. They were the ideal policyholders for viatical settlements and the transactions took off.

Unfortunately, business booms attract both honest businesses and scam artists. A small number of companies indulged in bad business practices and ended up getting the bulk of media attention, so viatical settlements got an unfairly negative reputation for a few years. In addition, the discovery of new drugs greatly extended the lifespans of the AIDS patients, lowering the annual return on the policies for investors.

The Rise Of Life Settlements

As viaticals became less attractive, the industry realized there was another population that fit the model: the elderly. Older Americans often face the problem of being rich on paper but poor in cash. Their assets are tied up in non-liquid assets such as homes and life insurance policies. They have grown, independent children who don't need the death benefit, and if the policyholder is divorced or widowed then there is no spouse to support either.

Thus was created the life settlement. Companies like Pacific West Capital purchase unneeded life insurance policies from older policyholders for more than the surrender value -- a 2009 study by the United States Senate Special Committee on Aging calculated life settlements are an average of eight times greater than cash surrender values -- and sell fractional portions of the benefits to investors.

The industry is still young, and organizations are finding new ways to turn these assets into safe and reliable investments. Pacific West Capital Group reviews policies and accepts only those that meet strict investment guidelines, minimizing the risk to our investors.