Life Settlement and Viatical Settlement News

By ELIZABETH WEILL-GREENBERG
Thursday, April 13, 2006

When Poz magazine founder Sean Strub sold his life insurance policy in 1995, he didn’t think he had much time left.

In the 1990s viatical companies sprung up to buy life insurance policies from people with AIDS and other terminal illnesses. Because AIDS was still considered a death sentence, the investors figured they were in line for a windfall.

“However, as time has passed, it is now clear that many people with HIV who viaticated their insurance policies are way ahead of the game, as they did not die on schedule,” said Strub, who is HIV-positive, in an e-mail interview.” I fall into that category.”

While Strub has had no trouble with his viatical company, a woman with AIDS in Pennsylvania has sued hers, Life Partners, because it has reportedly refused to continue to pay for her medical care. When M. Smith signed up with Life Partners in 1994, she was given only two years to live. She sold her $150,000 policy for $90,000 and was promised that Life Partners would pay her health and life insurance premiums until she died.

“Viatical became a wonderful investment when AIDS was predictably fatal,” said Gloria Grening Wolk, a consumer advocate and author of the book, “Cash for the Final Days: A Financial Guide for the Terminally Ill and their Advisors.”

Because of people like Strub and Smith, the viatical industry has switched its target market, and advertising campaigns, away from gays and HIV-positive people and toward the life settlement business, which is buying life insurance policies from healthy people 65 years old and older who are typically wealthy.

“I’m always a little nervous that one of the investors who purchased some of my life insurance might get a bit anxious to collect the death benefit — might make a good plot for a movie!” joked Strub. “One of my policies was resold to a group of individual investors in suburban Cleveland. It is odd for me to think that they are there losing money every day I continue to draw breath.”

In 1995 about seven viatical companies advertised in Poz magazine, said Megan Strub, the magazine’s publisher. Now only one still advertises, she said.

In last week’s issue of the Washington Blade no viatical companies advertised. More than a decade ago, it was a different story. In the April 9, 1993, issue of the Blade, there were five ads. One ad shows two well-dressed men beneath the text: “If you have AIDS and money is a problem… The Access Program purchases life insurance policies from individuals with AIDS, providing the money they needed for living today—quickly and easily.”

An ad for the Estate Trust Company promises “immediate cash” and “peace of mind” to “PWA’s terminal illness.” Another ad echoes that urgency and notes, “We put time on your side.”

Rather than viatical ads, readers of gay newspapers are more likely to find ads for AIDS drugs, said Ronda Goldfein, executive director of the AIDS Law Project of Pennsylvania, which is working on the Smith case.

“It’s no longer you might as well sell because you don’t have a future,” she said. “Instead, Sustiva is your future.”

A new life

In 1996, after protease inhibitors were announced at an AIDS conference in Vancouver, Dignity Partners, a viatical company, stopped buying insurance from people with AIDS and HIV.

“Everything was going smoothly until people stopped dying,” states a publication on viaticals by the AIDS Legal Referral Panel. “Investors anticipated a fast profit but were left with a return that could be decades away.”

The viatical industry dried up gradually between 1996 and 2000, as medications changed AIDS into a manageable, chronic illness, said Doug Head of the Life Insurance Settlement Association.

“AIDS especially brought to the marketplace people who were seeking funds for medical care,” he said. “People needed money before they were dead.”

The industry has changed as much as AIDS has changed since the 1980s, he said. There are about 50 viatical companies now from about 100 companies in the mid- to late-1990s, he said. The companies that didn’t switch to the life settlement business collapsed, he said.

“Fast forward to 2000, the viatical industry goes into the Dumpster,” he said.

In the 1990s, smaller policies worth between $5,000 to $200,000 were typically sold, he said. But as the industry has moved away from people with terminal illness and toward wealthy senior citizens, the policies sold now are no less than $200,000, he said.

“In the early days it was strictly AIDS patients,” said Bill Crust, founder and president of Viatical Settlements. “[But] two, three years ago we didn’t have anybody who would look at AIDS. They’re always coming up with another cocktail. God bless. I’m so glad to be pushed out of the business.”

But some worry that the industry has abandoned people who are terminally ill. While there were abuses, many people did benefit, they say.

“The industry made available hundreds of millions of dollars, maybe more than a billion, to people with HIV and enabled them to open businesses, realize life dreams, pay for health care and other expenses,” said Strub.”There was and is abuse, to be sure, but on the whole, I think people with HIV have gotten the better end of the deal.”

Wolk Grening said that terminally ill patients now can’t get the money they need. In the 1990s, people with AIDS and other terminal illnesses used the money from viatical settlements to buy medications or to buy a car to get to the doctor.

“This industry doesn’t exist for the same purpose anymore,” she said. “They’re not providing the benefit to people who need it.”

ORLANDO, FL — (MARKET WIRE) — 04/07/2006 — The Life Insurance Settlement Association (LISA) today praised the National Association of Insurance Commissioners (NAIC) on its new national educational initiative, “Insure U,” designed to inform the public about the basics of insurance.

“This balanced approach to providing public information will help consumers and is a logical extension of the NAIC Mission,” says M. Bryan Freeman, board president of Orlando-based LISA. “As an industry, we have long recognized that Insurance needs change over time; in fact, we recognize that such change is the foundation of our industry. Life settlements address those changing consumer needs and the NAIC has once again recognized the value of the settlement option.”

A life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Such transactions are usually undertaken for the purposes of estate or financial planning.

“People do not need to settle for less than the real value of their policy,” Freeman adds, “and the NAIC is helping people recognize the ‘asset value’ of their policies through the important educational efforts of Insure U.”

Also praising NAIC’s recent efforts, LISA Executive Director Doug Head notes that NAIC materials consistently note the need to “Review (insurance coverage) Annually.” “The NAIC offers this important advice to the public: ‘Each year, check your policies to make sure that they continue to meet your changing needs,’” he says.

The Insure U curriculum, as announced by the NAIC, includes a basic introduction to the four major types of insurance — auto, home, life and health — as well as special considerations for young singles, young families, established families and empty nesters/seniors.

“Far too many policy owners think that their insurance needs, especially in Life Insurance are ‘fixed for all time’ when they first buy a policy,” Head says. “Our industry has brought the value of Life policies to the forefront. Educational efforts like those of the NAIC help us help consumers, just as responsible legislation to regulate the industry helps consumers.”

“It is especially noteworthy that senior consumers receive an explanation of the value of settlements on the Insure U Web site,” he says. “Life settlements are still a relatively unknown idea for many people and they need to be aware enough of the option to ask their (insurance) agents about it.”

The NAIC also offers settlement guidance to consumers through brochures created for distribution through state regulators, such as state insurance departments.

“There is much confusion about the settlement option,” Freeman concludes. “We heartily commend the NAIC for recognizing life settlements as a phenomenal benefit for consumers.”

It is common that many individuals are using a life insurance policy for future property and estate taxes. This a very financially beneficial decision and can benefit your heirs greatly. What happens is you sell the property, move, or want to downsize? Before you could continue to pay the hefty premiums, surrender the policy for cash value, or let it lapse.

Now with a Life Insurance Settlement, you can recevie a higher value for you unwanted life insurance and get an immediate lump payout. An example below is how a client greatly benefited from a life settlement.

A 76 year old male owned a $3,000,000.00 universal life policy with a cash surrender value of $120,000.00. The original intent of the policy was to cover estate taxes on a property owned by the insured. The property was later liquidated and the policy was no longer needed. Insured utilized a life settlement and received $300,000.00.

The client was about to cash surrender the policy when he heard about life insurance settlements, a quick phone call generated an extra $180,000.00 into his pocket! Call 1-888-973-8377 to speak with a Life Settlement Professional today.

The source also said that New York recently opened an investigation into an obscure corner of the insurance business called life settlements.

Insurance broker National Financial Partners (NFP.N) this week disclosed it recently received a subpoena seeking information regarding life settlement transactions.

Marc Violette, a spokesman for Spitzer’s office, declined to comment on the subpoena.

In a life settlement, funds and other investors pay a lump sum for high-premium life insurance contracts taken out by rich people and top executives over age 65.

Source: Reuters 

TORONTO, March 3 /CNW/ - Maple Financial Group, Inc. announced today that it has entered into a definitive agreement to sell its wholly-owned subsidiary, Maple Life Financial Inc., to investment funds managed by Reservoir Capital Group, LLC. The current Maple Life management team, including President and Chief Executive Officer, Nate Evans, will continue to lead the Company and remain significant equity holders in Maple Life. Further
terms of the transaction were not disclosed.

“This transaction represents a compelling opportunity to continue the growth of Maple Life” commented Nate Evans. “Over the last four years, we have established Maple Life as the most trusted, highest rated(*) life settlement provider and servicer, and we are excited about our prospects at this very exciting time in the life settlement industry. This transaction will allow us to offer even more innovative products and services to our existing client base of investment funds, our distribution partners and insureds.”

“With an experienced and talented management team, a base of strong investment fund clients and a robust distribution network, Maple Life is well positioned to take advantage of the attractive trends as a leader in the life settlement industry” said Craig Huff, President of Reservoir Capital Group. “We are excited to partner with Maple Life’s management team in this transaction.” The transaction will close upon receipt of regulatory approval.

Press Release 

Baby Boomers in the United States are worth roughly US$30-trillion, setting the stage for a humongous transfer of wealth over the next few decades. But those shamelessly banking on a nice inheritance from their Boomer parents face a brewing threat to their expected riches.

Calsi Management Inc., a private company in Toronto, is attempting to raise between US$20-million to US$30-million from Canadian investors to buy life-insurance policies from ageing Americans. Investments don’t get much more alternative than this.

The basic idea is to acquire large policies at sizeable discounts to face value. For example, a buyer might pay US$300,000 for a US$1-million policy. Policyholders get cash to use while they’re still alive and can typically get more money from a third-party investor than selling or surrendering a policy back to an insurance company.

The buyer pays the premiums on an acquired policy and collects the face value from the insurer when the seller dies. While this alternative investment sounds a little morbid, it has a sanitized, inoffensive name: “life settlement.”

Life settlement has not yet taken root in Canada. But worldwide, it has grown into a US$13-billion industry, according to Bernstein Research, with the potential to reach US$160-billion a year.

Several major financial institutions in the U.S. and Europe are investing in life settlement. Even Warren Buffett, who has pledged to bequeath most of his US$40-billion fortune to his charitable foundation, is keen on the sector.

Calsi argues that buying the life-insurance policies of the aged can provide a predictable, low-risk yield to investors. In a marketing presentation to potential investors, Calsi said it is gunning for a 12% compound annual return, after fees. The projected return is based on a seven-year lifespan for the fund. If it raises US$30-million, Calsi will attempt to buy policies with a total value of US$62-million that will start paying distributions in the third year.

Another selling point is that life-settlement returns hinge on the cost of acquiring polices and paying premiums and how quickly policyholders die. Returns aren’t affected by fluctuating equity markets, interest rates or commodity prices.

But Calsi and other life settlement outfits still face a few challenges.

A big one is disassociating life settlements from their ghoulish and sometimes fraudulent predecessor, viatical settlements.

Emerging in the 1990s, viaticals involved the purchase of life-insurance policies from the terminally ill, mainly people afflicted with AIDS that needed money to pay for treatment. These sellers were expected to die quickly.

The rush to exploit this group spurred all kinds of “fuzzy-wuzzy” business, said Bernard Grybowski, chief executive of Calsi. In some cases, companies raised money to buy policies but never followed through. And with the arrival of new treatments for AIDS, people lived longer than expected so investors lost money.

Calsi is not involved with viaticals and insists it will adhere to all regulations. But it still has to deal with the perception that life settlements are equally controversial.

For example, lobbyists for the U.S. life insurance industry have raised concerns about investors buying insurance for healthy older people and paying the premiums just to collect the payout when they die.

When pricing policies, insurers also assume that a certain percentage of policyholders will stop paying premiums and give up the death benefit. If the life settlement industry keeps growing, the insurers whose profits hinge on large numbers of policies lapsing could suffer, according to a recent report by Moody’s Investors Service.

Furthermore, tiny Calsi not only has to raise money for its fund, it has to find policies to buy. Calsi said it has developed a network of life-insurance brokers and others in the U.S. to buy policies. But if the industry takes off, there will be competition for the most attractive policies.

That could drive up commissions on policy purchases. And sellers could demand higher prices.

At the same time, life settlement is relatively new, so there are no historical returns to look at.

That being said, life settlements might be a perfect investment for a pension fund. Faced with big deficits because investment returns and contributions aren’t keeping pace with projected benefits, life settlement investments could be a way to hedge this risk.

Pension funds can park money in illiquid investments, like private equity, for long periods of time, although retirees might be put off by their pension funds profiting from Boomers kicking the bucket.

While institutional investors are warming to life settlements in the U.S. and Europe, it will likely take more time in Canada.

Calsi is looking to attract money from wealthier investors, but it must compete with yields offered by income trusts even though it is looking to raise only a small amount of money. But given the infancy of the life settlement industry, and the infamy of its predecessor, Calsi’s management team have their work cut out for them.

Source: Keith Kalawsky, Financial Post

If you are considering selling your life insurance policy, it is important you understand the Tax Implications. However, this information if only for basic understanding, we recommend you speak with your tax advisor for a more detailed understanding.

As a life settlement of an insurance policy is in effect the sale of the policy to a third-party, and not a surrender of the policy to the insurance company.  Actually, the policy doesn’t need to have a cash value to be eligible for a life settlement transaction. In some cases, the lower the cash value the higher the settlement value is available. A life settlement is only productive if it can produce more than the cash value. The tax implications are twofold, and are relatively complex.  While the IRS has not issued definitive guidance on life settlement transactions, it has relied on the application of its laws and regulations that address similar situations.

Basic income tax concepts clearly indicate that gains and losses are computed by taking the selling price of an item and reducing it by any selling expenses and the investment in the item. The investment in the item is known as its “basis.” When dealing with life insurance policies, the basis in the policy is the total of all premium payments made on the policy. The amount of basis in the policy has a direct bearing on the amount of gain to be recognized from both a surrender and settlement transaction. In general, the basis computation is straight-forward, simply being the sum of the premiums paid to the insurance company.

When a surrender of a policy to the issuing insurance company occurs, the difference between the surrender proceeds and the basis in the policy is subject to income tax at ordinary income rates. This concept is important, as it is the first taxable gain computation performed in a settlement transaction. In effect, this surrender value minus basis gain is treated identically whether the policy is surrendered or settled. If the surrender value is lower than the basis, there is no ordinary gain to be reported and the proceeds are treated as a return of basis without a tax cost.

The second taxable gain computation is unique to a life settlement transaction, and results in a gain that is subject to tax at favorable capital gain rates. In this computation, the settlement proceeds are compared to the surrender value used in the ordinary gain determination. Because a settlement transaction involves selling the contract, and the insurance contract is treated as a capital investment, this portion of the gain is treated as a capital gain.

If you have additional questions about life settlement tax implications, please call a Life Settlement Professional at 1-888-973-8377.

Coventry First strongly supports the life settlement legislation sponsored by Senator John A. DeFrancisco and Senator James L. Seward that will provide much-needed protection for New York seniors who choose to sell their life insurance policies in the secondary market. Senate Bill 5476, based on the model settlement act of the National Association of Insurance Commissioners (NAIC), protects seniors through comprehensive regulation over life settlements, including numerous disclosures, licensing requirements and strong anti-fraud measures. Twenty-six states have already adopted such NAIC-based laws. The American Council of Life Insurers (ACLI) and others have recently suggested that the New York life settlement legislation would not protect New York consumers but would facilitate speculative uses of life insurance. This suggestion is incorrect. At the June 2005 NAIC Life Insurance Committee meeting, Alan Buerger, CEO of Coventry First, was the first to identify the need to have stronger settlement laws and the only witness to suggest that stronger settlement laws could effectively combat investor-initiated life insurance (IILI). It is, in fact, the absence of settlement law that presents the greatest risk of abuses involving life insurance. Senate Bill 5476 materially strengthens the protections contained in the NAIC model by making it illegal for trusts, corporations or charities to sell policies during the 2-year contestability period; it prohibits policies from being moved out of the state to avoid the strict regulation of the New York settlement law. In fact, the bill goes significantly beyond the law of any other state by eliminating nine exceptions to the prohibitions found in the NAIC model. Most importantly, the bill gives the New York Insurance Superintendent broad investigative and enforcement authority over those engaged in these activities. It is because of the addition of these stronger provisions that the bill was supported by Coventry First and the Life Insurance Council of New York (LICONY), a trade association of life insurance carriers. When this legislation becomes law, seniors in New York will be protected by the strongest and most comprehensive life settlement law in the country. About Coventry Coventry (http://www.coventryfirst.com) bridges insurance and capital markets to create groundbreaking products for the financial services industry. The company is the leader in the secondary market for life insurance and pioneered the resulting life settlement industry. Fueled by bold ideas, a deep understanding of life insurance, and impeccable standards, Coventry continues to lead the market by opening new opportunities for consumers and the financial professionals who serve them. Based in Fort Washington, PA, Coventry is the first secondary market company to ever receive Standard & Poor’s highest Servicer ranking and was named the nation’s 10th fastest-growing privately held company in the annual INC. 500 listing.

CONTACT:

Coventry
Kirstin Crouthamel
877-836-8300

Ideal candidates for a life insurance settlement are high net worth clients whose insurability has changed since the time the policy was issued. In addition, a decision to either lapse or surrender the policy is under consideration. A life insurance policy becomes unwanted or unneeded due to any number of situations.

A client may need new insurance, an annuity, or long term care. They may have outlived their beneficiaries, sold a business, gone bankrupt, or experienced a divorce. A retirement or a termination may have resulted in the unwinding of a split dollar plan or the timed lapsing of either key employee or buy-sell coverage. The liquidity or size of their estate may have changed. Policy premiums may have become unaffordable. Perhaps the insurance is timed to lapse with a terminating trust.

For whatever the reason, the original purpose of the life insurance may have changed. When that happens, a life settlement in the secondary life insurance market allows the policyholder to recover the true value of their insurance asset.’

Call 1-888-973-8377 to see how you could benefit from a Life Insurance Settlement.

Viatical Settlements did not begin as an actual business until the mid-1980’s, when the AIDS epidemic was beginning to explode. The number of ill patients was increasing due to this new outbreak, and it was acknowledged that many of these patients lacked the money to pay for their medical bills, yet had life insurance policies worth large sums. Because their life expectancies were inevitably short, they simply needed the money to pay for their cost of living and necessary medical treatments due to their illness. This was when small firms began offering viatical settlements. Patients were funded and investors were compensated. The viatical industry’s commencement was successful.

By 1996, the industry was flooded with new companies and investors. It had become difficult to distinguish which companies were legitimate and which were not. Many of the companies beginning to sell viaticals were paying no attention to state security laws, insurance laws, or registration requirements. They were also using money from investors, instead of jeopardizing their own funds. Money ended up getting distributed incorrectly, and the business was getting out of hand.

In order to create stability and integrity within the industry, regulations became stricter and viatical brokerages began working to mediate between buyers and viators.