What types of life settlement policies have the best chance of selling?
By Adam Meltzer
Magna Life Settlements
Every life settlement purchaser has a different buy box depending on their investment strategy and current holdings. There is a general buy box in the life settlement industry, with some purchasers focusing outside of this general buy box in an opportunistic manner.
Net death benefit $3,000,000 or less
Purchasers with larger amounts of capital and existing portfolios will purchase insurance policies with net death benefits greater than $3 million. As the net death benefit increases, purchasers expect to receive a higher yield.
Insured 70 years old or older
Purchasers will go below, depending on the LE value.
LE value between 24 and 120 months
LE values less than 24 months are considered a viatical settlement. A small number of purchasers exist for these policies.
Small number of purchasers for LEs with values between 121-160 months.
Very rarely will purchasers buy a life settlement with a LE value greater than 160 months.
Policy type: universal life and convertible term
Some purchasers will buy joint life policies and whole life policies.
Variable universal life policies can only be settled through a broker/dealer due to SEC regulations.
Policy must be out of contestability period
No current market for STOLI, BI, or wet paper.
Carrier rating (AM Best) of A- or better
Very few buyers will purchase insurance policies from carriers with below A- rating.
No premium financed life insurance
Some purchasers will buy premium financed paper, depending on the financing program and for a deep discount.
No Brooklyn, NY files
Life insurance policies that insure individuals who reside in Brooklyn and/or life insurance policies that are owned in Brooklyn do not generally receive life settlement bids due to high levels of fraud associated with the area in the past.
Life insurance policies and insureds that fall into these categories have the highest probability of selling at reasonable levels. While policies that fall outside of this buy box may still trade in the life settlement market, the purchase price will be discounted for the additional risks associated with it.