After a sharp downturn after the 2008 financial crisis, the life settlement industry is making a comeback in a big way. More and more seniors and baby boomers are retiring – unfortunately, more of those going into retirement are facing financial uncertainty and insecurity. The Baby Boomer generation, by widespread consensus, started in 1946. That means that the oldest baby boomers are 71 years old now – near the optimal age for life settlements, the age when it’s possible to get a lucrative deal for a life insurance policy.
Why is the Life Settlement Industry Growing?
The economy is recovering, and with it, the amount of capital available for investment. Low interest rates, though, mean that investors are also looking for investments with more lucrative returns. Since life settlements are what is sometimes called a “mortality play,” that is, they are not dependent on the stock market or interest rates and can, therefore, present a more interesting option to investors.
Another reason for the return to growth is the increasing regulation that benefits both sellers and buyers of life insurance policies. After a “Wild West” period in the 1980’s and 1990’s, 42 out of 50 states now regulate life settlements, ensuring a high standard of procedural quality and protection for life settlement engagements. These states cover more than 90 percent of the population of the USA. Furthermore, two more states – Michigan and New Mexico – regulate the viatical settlement industry, a subset of life settlements dealing with the terminally ill and their desire to sell their life insurance policies.
Chronic Health Conditions on the Rise
Another factor that is leading to the growth of the life settlement industry is the declining health of seniors who are at or nearing retirement age. Higher rates of obesity, a growing prescription drug abuse problem, increasing rates of Alzheimer’s and dementia all lead to more seniors needing cash to cover their medical expenses or those of their loved ones. American seniors, already retiring later, are now also facing an increasing amount of health problems. In these cases, simple common sense says that living life fully during your golden years requires some creative financial thinking. An unaffordable or unneeded life insurance policy can be a lucrative source of cash when sold in a life settlement engagement, providing, on average, seven times more than the cash surrender value of the policy offered by the insurance company.
More Unstable Economic Outlook for Seniors
Equally important in the development of the life settlement industry is the growing amount of American seniors who are carrying debt over into retirement. For example, roughly 40 percent of older Americans and seniors (50 and over) are at least $5,000 in debt, specifically – credit card debt. Just over 22% of those who answered the survey said that they had over $10,000 in debt, which is more than many of them had in their bank accounts. And just over 37% of older Americans had less than $1,000 in their checking accounts. However you cut it, it’s clear that retirement is not the oasis of financial stability that it once might have been. Challenges abound, and a life settlement might be the right choice that would allow you to breathe easier and enjoy your golden years as you should.
Fundamental Demographic Processes Affecting the Economy
Finally, life settlements are becoming a more attractive option to investors and sellers alike because of slow, yet fundamental demographic changes that will affect and potentially lower what are usually seen as investments with stable returns. Due to the aging of American society and a lower birthrate across the board, including among immigrants, there will be less pressure to build new roads, homes, and commercial and manufacturing real estate such as factories, warehouses, and shopping malls. This lessened pressure will lead to less demand for capital – the cash invested by baby boomers in stocks and funds.
Stock returns in particular, which have averaged a return of 7% per year, will potentially go down to an average return of 4% per year. Those three percentage points will seriously affect the financial calculations of seniors planning for retirement or going into it already. These projections are not the work of fringe analysts – CalPERS, the largest public pension fund in the US, is warning of such changes. Unfortunately, this economic process is partly due to the demographic structure of the baby boomer generation themselves – they are a significant portion of the population of the United States, roughly 75 million individuals, as well as being the wealthiest.
The aging of the baby boomers, the frugal spending practices that often come with retirement, and a lower birthrate in the US will challenge long-held truths about investment and retirement. For these reasons, more and more people at or nearing retirement age will start thinking about life settlements as a sound choice to help ensure their financial stability.
In Conclusion – a Stable Future for the Life Settlement Industry
Along with renewed and growing interest in life settlements from both consumers and investors, life settlement brokers, and firms that provide brokerage services are becoming increasingly professional. There is a national voice of life settlement firms, the Life Insurance Settlement Association (LISA), which has representatives in many US states, as well as a European Life Settlement Association (ELSA). The former has been uniting and regulating the work of life settlement firms and brokers for over 22 years now, and with increasing legislative regulation on a federal and state level, as well as awareness and education campaigns, investors and consumers are feeling safer and more confident when considering buying or selling life insurance policies.
Overall, in 2017, the state of the life settlement industry is stable and growing. The future of life settlements as investments and sources of cash for seniors is a bright one, with lots of room for growth. According to the CEO of LISA, 8 in 10 seniors are still unaware that they can sell their life insurance policies for more than what they would receive by taking a policy surrender offer from their insurance companies. With large institutional investors seeing the potential of life settlements and accordingly moving into the market, the industry is on course for long-term growth due to a combination of demographic, economic, and health-related trends that show no sign of reversing.