Life Settlement Industry

The life settlement industry can trace its primitive roots back to the early 1900's. In the landmark case of Grigsby v. Russell, the U.S. Supreme Court ruled that in consideration of money, the rights to a life insurance policy may be assigned to a 3rd party that didn't originally have an insurable interest. Consequently the legal right to sell a life insurance policy as a life settlement solution was established in the court system and the foundation for the future life settlement industry was cemented.

Viaticals were the First modern Life Settlement Solution

The life settlement industry in its modern form is relatively new compared with other segments of the financial services sector. Today's life settlement industry is an evolution of the viatical life settlement solutions that grew from the AIDS epidemic in the 1980's and 1990's. When no known treatment of AIDS was available, patients sold their life insurance policies to private investors or a limited number companies as a way to fund medical and living expenses. This life settlement solution offered terminally ill patients access to immediate cash. While investors benefited from the life settlement solutions by getting a low risk investment that helped people at the same time. Once improved AIDS medicine was available and patients began to live longer, investors began searching for similar life settlement solution. As AIDS patients were no longer automatically considered terminally ill upon diagnosis, investors look for other life settlement solutions that offered a way to invest in life insurance policies. They naturally turned to healthy senior citizens and began offering the more commonly thought of life settlement solutions.

Modern Roots of the Life Settlement Industry

In 1999, the life settlement industry began by buying life insurance policies from healthy seniors. The amount of buyers offering life settlement solutions were still very limited as the life settlement industry was considered a small niche. Approximately $200 million of life insurance face value was transacted in 1999, but the life settlement industry grew steadily each subsequent year as awareness increased. As the life settlement industry grew, the buyers evolved from groups of private investors to financial services companies that were offering consumers a more formal life settlement solution. In 2004, the life settlement industry found a new catalyst. In January of that year, life insurance policies were grouped together and offered by Tarry Town LLC in a $60 million securitization, backed by $160 million of face value. Then 3 months later, Legacy Benefits issued a $70 million securitization. This meant the life settlement industry was no longer just for investors who wanted to buy policies and wait to collect the death benefit. Life insurance policies were now being purchased, then assembled into portfolios and made available to a broader group of financial institutions for purchase on a tertiary market. In the process, the life settlement industry created an exploding appetite for life insurance policies further driving the amount of life settlement providers offering life settlement solutions to consumers. As a result, the life settlement industry size went from $3.25 billion in 2004 to $6.12 billion in 2006. Then by 2007, the life settlement industry almost doubled to $12 billion. By the end of 2008, many estimated the life settlement industry had reached $15 billion of life insurance face value.

Future of the Life Settlement Industry

Looking forward the life settlement industry seems poised for accelerating growth. The number of financial institutions currently offering life settlement solutions is in excess of 50, with more entering the life settlement industry regularly. Financial institutions are attracted by the low risk investment and uncorrelated asset class that the life settlement industry offers. In addition, a small number of boutique money managers are offering their own life settlement solutions to investors. These money managers will buy 5-10 policies to build a life settlement portfolio for their investors. With a 33% increase in the 65+ population over the next 10 years, the number of possible candidates for a life settlement solution is mushrooming. That is why some experts project the life settlement industry to reach %160 billion over the next few years.