Life settlements: Fight the power and say no more

‘What we need is awareness…

make everybody see…

from the heart, it’s a start, a work of art’

- ‘Fight the Power’ by Public Enemy

When a senior discovers that the life insurance policy they just sold back to the insurance carrier for $0, succinctly described as a lapse (of reason?), could have generated a six digit payday in the secondary life market, affectionately termed as a life settlement, they are generally speaking … not amused.

Someday a headline on your local device or parchment will describe a politician or celebrity whose family is litigating against a fiduciary for neglecting to mention that they did not have to sell a lottery ticket back to the state. When that occurs most everyone whose Linked In profile suggests any Venn diagram connection to seniors will bullet point life settlements as a specialty and if appropriate a necessity. Until then though…

Is this microphone on?

Life settlements are a life insurance policy with a check attached.

The life settlement ‘daisy chain’, (financing entity/fund/provider/broker/agent), is a cornucopia of intermediaries with frontal lobes and opposable thumbs engaged, empowering the email machine as sage.

From capital to paper, the various participants’ function is synonymous albeit not eponymous, even though the financing entity/fund is a broker with a pricing model and/or subscription agreement, the provider is a broker with a life settlement purchase and sale agreement, and the broker is … well, as defined.

A life settlement is a bond of uncertain duration. The duration is called a life expectancy. The shorter the duration, the more valuable the asset. Once the duration is known, all market participants, empowered with the Excel IRR function, can determine what the file’s ‘final round pricing’ is. The pricing calculation takes almost as long as it takes for your coffee to warm up in the microwave, and often the seller’s first sip is a bit bitter. Unlike sands through an hourglass, the auction process to the finish line drags on, as market participants swing for a monetary home run until they realize a bunt can also allow them to reach base.  

Inexorably, the 30-50 proclaimed capital partners that are available for bidding are slid by decimal point to 3-5 emails, resulting in a Keyser S?ze tear sheet of offers and counteroffers, which, by statute, must be disclosed to the seller, where, dependent on the ‘relationships’ involved, the final choices are almost always the usual suspects.

If probably structured, there is a second round of pricing available, allowing the seller to reach into select capital partners’ actuarial piggybank, driving value where there is the acumen to ascertain a shorter duration.

At the other end of the cost/benefit spectrum are the ‘low-hanging fruit’ commercials on TV that allow Ayn Rand LLC to buy an asset for $100,000 and flip it, before the ink dries, for $300,000. Not bad for government work.

The greater degree of difficulty in life settlements though, is trying to convince folks that there is a greater degree of difficulty.

It is a tale though not available to the captive agent, that neither has the ears to hear nor the eyes to see, lest they offer an alternative to the insurer’s lapse-based pricing model. Until the agent evolves into an independent adviser, the insurance company stands to inherit that windfall profit.

BDs and their assorted kin collectively are like the Schr?dinger's cat, they approve and disapprove at the same time. This quantum condition dependent on how they control the vigorish; if the house can lock down a few points then the ‘life settlement game’ is worth playing. If compensation need be disclosed to the seller then there are too many issues and not enough tissues. For the erstwhile life settlement participant that tries to convince folks otherwise, it becomes a Seinfeldian conversation about nothing that ends with the epigram ‘no vig for you’.

Serving that soup takes minimal effort, the real heavy lifting of this narrative occurs at the ‘agent book-ends’; the agent for the seller, and the escrow agent charged with approving the life settlement file so funds can be disbursed to the seller.

A life settlement is like a real estate transaction. The diligence while closing on a property often can discover, for example, that the condo declaration was not formed properly or perhaps there is an issue with the plat of survey. Similar surprises can occur with life settlements; perhaps the trust was not formed properly and cannot sell the policy, or there may be confusion over the structure of past ownership changes. In both situations, ‘snowflake’ documents need be created to consummate the transaction.

For the agent to the seller, the struggle is not only identifying prospects and presenting the opportunity, but also managing expectations be it on value or process.

For every financial instrument known to man there are hundreds if not thousands of back office service organizations that promise to enhance the fiduciary’s practice, providing same the tools and training and education to take him (gender neutral) to the next level. No such entity exists in life settlements. For most folks trying to master the subject, it is a riddle, wrapped in a mystery, wrapped in an enigma.

If only there were a market participant that was dedicated to empowering the fiduciary with the requisite tool kit necessary to become a subject matter expert in life settlements.

Most material on life settlements is peppered with stock photos of happy seniors running down a beach with prose that is so dry one almost needs a saline drip to get to the end of the article. 

If only there was a wordsmith that could help you design your marketing plan with storytelling that sticks : it is as if all the property owners in Oregon, Nevada, and California had no idea they could sell their home ; it is like a PBS road show where the fella has no idea what the value is of the antique in their closet ; in the time we have had this conversation, gentle fiduciary, another $250,000 was sold back to the carrier for nothin’.

If only there was a fella who has securitized life settlement portfolios, operated a life settlement provider, created a life settlement fund and managed a life settlement trading desk that was willing to, in an evangelical approach, share knowledge within the context of a mission to find the last prospect in the States that is unaware of the secondary life market and help them to both see and master this concept.

If only..

Wink, wink, nudge, nudge, say no more… say no more.