Opulen Capital Life Settlement Blog

Large Growth Predicted For Life Settlement

It should come as no surprise by now. The United States is in the midst of a massive financial shift. The capital markets are in a state of anaphylactic shock as investors have pulled most of their money out of long-term positions in companies. Once highflying share prices are now a dismal fraction of what they used to be. It seems that volatility is so high that only the most savvy of investors would dare getting into the capital investments at this point.

In a desperate search for new safe havens to invest, investors have alighted upon life settlements. “With more cash strapped baby-boomers reaching retirement age, these people are scrubbing their asset base for anything that can be converted into liquid cash” says Steven Ingles, a senior partner at Opulen Capital. “These individuals are looking into their portfolios of investments and finding that they can sell their Life Insurance policies onto the secondary markets for immediate access to cash, in an amount far greater than what they would get if they merely traded the policy for its accrued cash value.”

What this means for the investment community is a strong asset class of non-market-correlated investments which provide a safe hedge for the investor to continue to grow their money independently of stock market and real estate valuations. For the right individual, the Life Settlement arrangement works out to be a win-win for all parties involved. The insured gets a check for 2-3 times what they paid into the policy in premiums. The investor wins because the death benefit of the policy is greater than the carrying costs. And lastly, the insurance companies win because they’re cash strapped in this poor economy and need revenue.

As more legislation and investor interest is created, look to Life Settlements to be validated as a consumer product that more financial professionals look to.

Located in La Jolla, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361)

Life Settlements to the Rescue

Even the big guns are turning to the life settlements market in an attempt to resurrect the faltering economy. News that AIG has become the first company to successfully securitize a pool of life settlement policies was big enough. But that the company is using a portion of the proceeds to pay down its loan to the federal government is precedent setting. AIG’s business unit Risk Finance led efforts to securitize life settlement policies with a face value near $8.4 billion. That transaction alone netted over $2 billion. The $8.4 billion is being transferred to the Federal Reserve Bank of New York in the form of securitization notes that will start AIG down the path to paying down the company’s $152 billion loan. The deal received an A.M. Best rating, though Best declined to publish the rating because the deal was private.

Securitizing via the life settlements market is not always successful. An attempt by Ritchie Capital Management to securitize $1.57 billion in life settlements was thwarted by allegations by the New York Attorney General that the policy originator, Coventry First, was bid rigging. (Most charges against Coventry First have since been dismissed.)

Other companies have attempted the market, but have fallen short of securitizing life settlement pools. The reason? There simply aren’t enough policies with short life expectancies to make securitization happen. Due to the shortage of viable life settlement policies, building a portfolio of life settlement policies could be a long, costly process for the investor, thus causing many investors to shy away from securitization deals.

In fact, A.M. Best released its research on the life settlement policies available and found that a mere 8 percent of policy holders attempting to enter the life settlements market have life expectancies determined by medical personnel to be 6 years or fewer. As a result, more people compete for these policies and fewer securitizations occur.

Clearly until the market for life settlements expands and buyers find that perfect storm of conditions, securitization of the life settlement market will be slow. So slow, in fact, that this was only the second rated securitization in the life settlement industry in the last 5 years. In what many contend was not a true life settlement securitization deal, Legacy Benefits securitized $70.3 million (this deal having been rated by Moody’s). However, the Legacy deal included annuities, which were used to enhance the collateral of the deal.

AIG’s use of the life settlements market to securitize and pay down its debt shows the flexibility of the industry, and how life settlements can be utilized in less traditional ways to increase wealth and alleviate financial strains.

Located in La Jolla, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361)

Economic Downturns: Is the Life Settlement Market Still Relevant?

It takes no genius to see what’s happened within the financial industry and how the same set of unexpected circumstances could affect the insurance industry. With insurance carriers now mixing financial business alongside their insurance business, the reality of a market downturn wiping out insurance reserves is all too real a scenario.

That’s not to say the insurance market is not stable. On the contrary, most insurance companies today have ample reserves and have operated business on a conservative investment strategy. With regulations keeping the two entities separate, few insurance companies are expected to suffer the same losses as with the financial industry. Even with insurance carrier AIG, the problem was isolated to the financial wing of the company and did not affect the insurance side.

This could be good news for the life settlement market. With an influx of people facing retirement in an economic downturn, life settlement solutions could be the answer to riding out a tough economy. Yet as data from a 2008 Society of Actuaries study shows, life insurance policies are being written for a population that is now living longer. That could mean a strain on the life settlement market as policy holders flock to life settlement programs to cash in their policies for a life settlement.

Because of the newfound popularity of life settlement solutions, life settlement buyers are forced to revisit their expected return on investment figures. This has created a tighter life settlement market, a smaller market for premium financed life insurance, and stricter qualification requirements for policy holders.

Availability is not the only issue in the life settlement market – the amount of settlement paid has decreased. And more critically, life settlement investors are looking for older policy holders who pay premiums that are less than 7 percent of their policy’s value.

Buyers are now considering policy holders who fit the following conditions:

1. Is age 70 or older
2. Is holding a universal life, convertible term, or variable universal life policy
3. Is expected to live fewer than 16 years
4. Is paying less than 7 percent of policy value in premiums

That means insurance brokers and life settlement brokers are in the unfavorable position of setting realistic expectations with policy holders. While life settlements may be a viable option, the window of opportunity is closing somewhat, leaving a lot of unhappy clients and creating loss exposure claims for their life settlement and insurance brokers.

All is not lost. Even under the new criteria, many life settlement offers are being made. Most clients can expect 3 to 5 offers, which deliver an average gross settlement of around 15-18 percent. While that is lower than the typical 7 to 10 offers and average 25 percent payout a policy holder would garner pre-2008, these offers are still giving the policy holder options.

We at Opulen Capital suggest that brokers advise their clients about the need for quick decision making. While offers are indeed being made, life settlement buyers are no longer giving clients the luxury of time to make a decision. That’s why we advise brokers to educate policy holders before starting the life settlement process on what can be expected, what constitutes a fair value for their policies, and whether life settlements are a viable arrangement for them.

Located in La Jolla, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361).

Don't Surrender Your Life Insurance

Too often the insurance broker community offers up a singular solution to clients wanting to cash in on a life insurance policy. That advice – to surrender the policy – can have a huge financial impact on the policy holder, and can expose the broker to unforeseen risks.

Let’s assume Bill Broker’s client, Pam Policyholder, comes to Bill needing cash for her policy. Bill advises Pam to turn over her policy to the company in exchange for the surrender value stated in her policy – in this case, $60,000 for Pam’s $2,000,000 policy. Pam is pleased until someone informs her that a life settlement deal could have netted her more than $125,000 for that same policy. Pam in turn sues Bill and his company because they failed to advise her fully of her options. Had Pam known about the life settlement option, she would have netted more than double her policy’s surrender value.

It’s not enough for insurance brokers to operate under the assumption that life settlements are not options open to their clients. In most cases, policy holders are indeed eligible for a life settlement arrangement. Failing to inform clients of that option could be a costly oversight. Most insurance policies state that insurers are not liable for insurance broker omissions when it comes to dealing with clients. That puts the onus on the broker to provide proper fiduciary responsibility and inform clients of all options, including any life settlement options available to them.

Here are some tips for insurance brokers to fulfill this obligation:

1. Evaluate your client’s financial picture to determine if the life settlement market is an option.
2. Help your client obtain the best deal by conducting your own research into the life settlements brokerage market and locate brokers who work with licensed life settlement providers.
3. Choose an insurance broker that will shop your policy with multiple providers.
4. Contact Opulen Capital for a comprehensive look at your client’s portfolio and how it may align with a life settlement opportunity.

Also, advising your clients to consider life settlements requires equal due diligence. Opulen Capital works with brokers and their clients to help them understand and execute the best possible Life Settlement solution. Our program offers insurance brokers and clients a full range of information and advising services that help educate brokers and policy holders on the options available. Because we do the due diligence, insurance brokers have an added level of protection and a silent partner when presenting surrender options to policy holders.

What’s clear is that life settlement options are no longer considered an invalid option when brokers are informing clients of their options. With more clients becoming savvy to the life settlements market, brokers need to become aware of the life settlements market and include life settlement options in any advice given to clients who qualify.

Located in La Jolla, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361).

A Taxing Situation for Life Settlement Owners

Life settlement options have proven to be viable investment strategies for the investor considering diversifying the portfolio. Yet one thing to factor in to any life settlement agreement is taxes. Unlike the arrangement for life insurance policy holders, life settlement owners or beneficiaries do not benefit from an income and capital gains tax-free status. In fact, most life insurance policies stipulate that the tax exclusion is voided if the policy is sold or transferred for some value to a third party beneficiary, which includes life settlement providers and investors. Now the policy beneficiary is liable for all taxes related to the transfer or sale of the policy, and if the life settlement provider is a life settlement broker or group whose specific business is to buy insurance policies, the provider will be expected to pay income tax on the gain, as it is considered ordinary income.

The amount of income taxes paid is on the difference between the policy face value and the purchase price and any premiums paid. The exceptions are:

1. if the life settlement provider qualifies as a partner of the insured
2. if the life settlement provider is part of a partnership in which the insured is a partner
3. if the life settlement provider is a corporation where the insured is either a shareholder or an officer.

For the policy holder too there are taxes to consider. In a typical surrender situation, the policy holder is required to pay taxes on any gain from the surrender of a policy. Assuming a $1 million policy and a surrender value of $200,000, the policy holder would be taxed at federal and state levels, which would reduce the payment significantly. In a life settlement arrangement, the policy holder’s tax rate would be the same (assuming the same capital gains tax and state income tax rate), but the payout could be more in the range of $500,000 minus those taxes, which would give the policy holder a much higher tax, but also a much higher net payout.

However, life settlement arrangements are not always taxed. For example, any amount the policy holder receives up to the adjusted cost basis amount is exempt from income tax and capital gains tax. In the view of the IRS, any premiums attributable to the cost of insurance should not be considered as an increase in basis.

Still, any amount a policy holder would receive on amounts over the adjusted cost basis and to the cash surrender value will be taxed at ordinary tax rates. And any amount a policy holder receives over and above the cash surrender value of the policy is subject to capital gains tax. This last tax stipulation was written for the life insurance market in 1941 and has yet to be tested for viability in the life settlements market.

If you’re a life settlement broker or a policy holder considering your life settlements options, the experts at Opulen Capital can help you determine your or your client’s tax situation for any given life settlement arrangement.

Located in La Jolla, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361)