Viatical Settlement & Senior Viatical  Life Settlement - Selling your life insurance policy

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Viatical and Senior Life Settlement Industry - a short history

The viatical and senior settlement industry is comprised of viatical / senior settlement brokers who work on behalf of and are obligated to the policy owners, and viatical / senior settlement providers - agents who work for investors.

Viatical settlement brokers in the past were mostly the policy owner's insurance agents. The agent knew the insured or policy owner, and was in a position to effectuate the transaction. This has changed as the industry matured, with professional viatical brokers replacing the life insurance agents, or, working along side them and the policy owner to insure the maximum offer is received from the funder (viatical / senior settlement provider).

The funder is on the opposite side from the broker and policy owner. The funder is obligated to their finance entity (investor) from which they get their funding, and who require a return on their investment. As such, the settlement provider is seeking to purchase the life insurance policy for the absolute lowest price possible within regulatory constraints, where the viatical broker, is demanding the highest price be paid to their client - policy owner.

In the past, investors were mostly private individuals, with small finance companies and life insurance brokerages taking a position. The capital markets were taking a wait and see attitude - wanting to know  that regulatory issues had stabilized and they were comfortable with the financial analysis before coming into the market.  Because of the lack, early on, of institutional capital for viaticals and senior settlements, the sole source of funding was individual investors. These individual investors were willing to take risk based purely on the mortality assumptions provided by the "viatical sales agents". Viatical sales agents, were usually life insurance agents who would solicit "private investors" to fund the purchase of life insurance policies from people suffering from terminal illness - viaticals. 

Because by definition, the people selling their policies were "terminally ill", numerous regulatory and public policy issues arose. State insurance, and state and federal securities regulators wanted to know if there were violations of law, and whether some scheme to protect investors and the insureds was warranted. 

While most states have regulation in place covering viatical settlements, less than half regulate  life or senior settlement on the buy side. State securities laws are being amended to avoid dispute with a recent United States Circuit Court decision as to whether a viatical settlement is a security, and relates to  the way a life insurance settlement can be marketed to individual investors - both viatical and senior life settlement. 

In the past, viaticals and senior settlement had been sold by others as "investments" by fractionalizing the ownership or beneficiary rights on the life insurance policy between the purchasers of the policy. This was done by asking the life insurance company to list the individual investors as owners / beneficiaries on the policy, and sometimes, less attractively, by having the viatical settlement provider or provider trust "own" the policy and make payments to the investors at the time the policy matured, meaning, at the death of the insured. The purpose of this "fractionalization', was to allow private individuals to purchase a "fraction" of the policy. This made selling viatical investments easier by allowing people to diversify their holdings - a viatical mutual fund of sorts.

Because risks are inherent in allowing settlement providers to chose which policies to purchase, to own, or be responsible for making premium payments, some investors lost money.  Some policies lapsed after the provider or provider trust took ownership, and some policies - which should never have been purchased within the two year *"contestability" period - were rescinded by the insurance companies.

As a result, states increasingly passed laws giving their respective department of insurance regulatory authority over these transactions - not by their nature insurance products, but "insurance by-products".  Disclosure standards, minimum payments to viators (Insured/policy owner), and licensing of brokers and providers followed.  Investors became more savvy as press reports revealed losses to the purchasers of viatical investment contracts.  The market adjusted by offering "stop loss insurance" on the life expectancy (LE) - Bonded viatical settlements.  A stop loss contract works by providing contingency insurance allowing investors to know (at least in theory) their minimum return on investment (ROI) prior to committing funds to purchase viaticals. The difficulty here, is that while the contingency insurance reduces life expectancy extension risk, the cost is generally 4>7% of the face amount of the policy.  What this means to investors in viatical settlement contracts is that purchasers gave up 10>20% on their investments' total return for the comfort of knowing the "downside" - reasonably expected minimum return in the 7>8% range.

One beneficial effect stop loss or contingency insurance had on the life insurance settlement industry is the standardization of the underwriting process. Both medical and insurance review standards were now fixed, with a major insurance company dictating the terms and effectively collateralizing the return to investors. The provider (funder) was required to use life expectancy and review techniques that precluded, or at least reduced, viatical investment fraud.

Another beneficial aspect of stop loss insurance was the appeal it held for the investment banking community who were seeking to securitize this new asset class. Investment bankers could now model portfolios of viatical and senior settlements (life settlements) with a known minimum rate of return. Because the industry was young, data did not exist on the reliability of the life expectancy evaluations being used - the big unknown in the transaction. Consequently, investment bankers were reluctant to solicit capital for these investments.  With stop loss insurance bound by a major financial institution, and a credit rating issued by one of the big four credit reporting agencies on the portfolio, Wall Street was ready to bring this investment product to their pension fund managers, life insurance companies, and institutional investors.

Life insurance agents and viatical life settlement brokers became concerned with the regulatory exposure of selling viaticals to viatical companies who solicit funds from non-accredited private investors. Because of increased regulatory constraints on policy purchase and increased cost of raising capital on a retail bases, private viatical investment contracts are being crowded out by institutional funding..

The effect of increased regulation, institutional money, and sophisticated analytics on the viatical market is the legitimizing of the viatical and senior settlement industry. And the (temporary) crowding out of private investment from a market place that would not have existed without it.

Safe Harbor Funds, LLC  is a Life Insurance Settlement Broker with relationships at multiple, licensed, large institutional funding sources and a fiduciary responsibility to represent only the policy owner in the viatical or senior settlement transaction.  If you are wondering; "can I sell my life insurance policy", call us toll free at: 800-832-7512 and find out.

                       FREE  Viatical Settlement and Senior Settlement Quotes! 


Safe Harbor Funds, LLC
"The Viatical Settlement Company"
228 Park Avenue South #30470
New York, NY 10003
Call: (800) 832-7512
Fax: (877) 838-5859
www.safeharborfunds.com

We do not provide Viatical or Life Settlement services in
New York at this time, we expect to provide them in the future.


Florida Viatical Brokers License

*Call Safe Harbor Funds, LLC with questions

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