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Seniors forfeit $112 billion in benefits annually due to lapsed or surrendered life policies, LISA research says

Brian Anderson

NEW YORK CITY – Americans who are aged 65 or older leave approximately $112 billion in benefits on the table each year by lapsing or surrendering their life insurance policies, according to new research unveiled at the Life Insurance Settlement Association’s (LISA) Fifth Annual Institutional Investor Life Settlement Conference.

The data was presented by John Welcom, founder and chief executive officer of Welcome Funds, and Darwin Bayston, president and chief executive officer of LISA. The event took place on Monday, Feb. 23, at The Ritz-Carlton New York in Battery Park.

“The potential size of the life settlement market in the U.S. is simply astounding,” said Welcom. “There are tens of thousands of American seniors who are collectively forfeiting billions of dollars in death benefits each year because they lapse or surrender their policies to the insurance companies and, as a result, those policies are terminated.”

In a life settlement, the policy’s owner transfers the ownership of that policy in exchange for an immediate cash payment from the buyer. Candidates for life settlements are typically 70 or older, with a life insurance policy that has a face value of more than $100,000.

Welcom provided detailed analysis of the data regarding the potential size of the life settlement market in which he isolated the types of policies that are best suited for a life settlement.

“Our research indicates there are roughly 250,000 of these policies that are lapsed or surrendered each year, with a combined face value of more than $57 billion,” said Welcom. “Based on the publicly available data regarding the number of closed life settlement transactions last year, we’re currently serving less than 1% of this total possible market, so there is tremendous potential growth in the years ahead.”

In the presentation, Bayston cited a survey by the Insurance Studies Institute, which found that 90% of seniors who previously lapsed or surrendered a life insurance policy said they definitely would consider selling their policy and wished they had known about it when they terminated their policy.

“There are a variety of reasons that a senior may want to explore the life settlement option, such as the life insurance policy is no longer needed or wanted, premium payments have become unaffordable, or various changes in life circumstances such as divorce or sale of a business,” said Bayston. “Our greatest challenge as an industry at this time is to facilitate greater consumer awareness of life settlements so that seniors at least know this option exists and that it may be an attractive alternative to lapsing or surrendering a life insurance policy.”

LISA’s annual gathering for institutional investors is the largest event in the industry that brings together executives from pension funds, hedge funds, family offices, foundations and endowments to discuss the latest developments in the secondary and tertiary markets for life insurance. Conference sessions addressed the outlook for the life settlement market, issues investors need to be aware of when considering entrance into the life settlement market, and the opportunities and challenges in developing settlements as a funding solution.

Mark Venn, managing director and chief executive officer of ClearLife, and Gary Brown, chief executive officer of CMG Life Services Inc., led the closing session – “Maximizing Value and Measuring Performance” – that detailed how performance of life settlement investments are measured by returns and how policies are valued. During the session, Brown shared verified results of CMG’s investment returns from approximately 1,300 policies it has purchased since 2004. As of year-end 2014, 205 matured policies have generated an average Internal Rate of Return of 66.04% on those policies.

More than 40% of the registered attendees for this year’s event were from institutional investing firms or financing entities. Influential speakers from companies such as Imperial Finance & Trading, RiverRock Group, Houlihan Lokey and BroadRiver Asset Management headlined the conference agenda.

About the Life Insurance Settlement Association

Established in 1994, the Life Insurance Settlement Association (LISA) is the nation’s oldest and largest organization representing participants in the life settlement Industry, with a current membership of more than 85 companies doing business in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The mission of LISA is to promote the development, integrity and reputation of the life settlement industry and to promote a competitive market for the people it serves. LISA’s membership consists of brokers, providers, financing entities and service providers to the industry. For more information, visit www.lisa.org.



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