As promised, today we’ll explain how a life settlement secularization works so you can better understand it’s potential positive impact on the life settlement market. First it’s important to explain how life settlements are originated in the life settlement market. Life settlements usually begin when a life settlement agent or life settlement broker comes in contact with a policy owner who wants to sell an unwanted life insurance policy.
Usually through a life settlement broker, the potential life settlement policy enters the life settlement market when it is presented to a number of life settlement providers for “bids”. In most cases a life settlement provider represents life settlement investors who will actually take ownership of the life settlement policy if a sale is concluded. In some cases, however, the life settlement provider is actually the investor buying direct for their own portfolio.
Simply put, in a life settlement securitization an issuer raises money from outside investors and then provides the cash to the provider for purchasing the policies. In return, the investors are normally entitled to payments of principal and interest. By expanding the life settlement market beyond institutions to individual investors, more investment capital can be deployed to purchase more policies.
The capital markets have recently shown a lot of interest in life settlement securitizations. In fact, some financial institutions are reportedly financing the accumulation of life settlement portfolios in hopes they can be securitized later.
Tomorrow we’ll look at some of the obstacles that stand in the way of life settlement securitizations. In the meantime, please try LIVEpdq if you have any questions about what your policy might be worth in today’s life settlement market.