Life Expectancy Certificates: The Most Important Variable in the Pricing of Life Settlements
Did you know that a policy owner’s life expectancy estimate is the single most important variable used by institutional buyers in the pricing of policies in the life settlement market?
That’s why financial advisors and their senior clients who are planning to sell their policies for the highest cash settlement should never underestimate the significance of life expectancy (LE) certificates and their role in the underwriting process.
Our Value Add: We shoulder the costs for LE certificates
At Asset Life Settlements, we add value to each life settlement transaction by shouldering approximately $1,200 in initial hard costs associated with the underwriting process.
This stage in the life settlement process primarily involves paying for medical records, as well as purchasing two “Life Expectancy Certificates” (@ $550 each).
Shouldering these initial costs in the life settlement process means that advisors and their clients pay nothing, even if the policy is not sold at the end of the process.
More importantly, our initial cash investment is a powerful motivating factor as we begin our rigorous negotiations with prospective buyers in pursuit of the highest possible offer for your policy. Only after the policy is sold are we able to recoup our initial investment via compensation from the buyer.
What is a life expectancy certificate?
In the life settlement industry, a life expectancy certificate (also known as a life expectancy report) is normally a two-page document containing a statistical calculation illustrating the expected average length of life for an individual with a known mortality risk profile.
These reports are generated by life expectancy providers who employ actuaries to assess the insured’s risk factors. These actuaries use mathematics, statistical calculations, and mortality tables to support the medical underwriting analysis in order to arrive at a mortality rating that details the number of months the insured is expected to live.
According to an actuary with experience in the life settlement market, the average life expectancy for individuals who have sold their policies is approximately 120 months (10 years).
The most important factors in defining an individual's mortality risk profile are demographics, personal and medical history.
The types of risk factors that are reviewed during the life expectancy underwriting process include adverse medical conditions, substance abuse, psychological disorders, motor vehicle violations, disabilities, adverse family medical history, tobacco use, and hazardous lifestyles, sports, avocations or occupations. All of these risk factors are known and well accepted by the life insurance and life settlement industries as influencing the risk of death.
What steps are involved in the underwriting process?
Once a policy owner completes our life settlement application form and signs a medical release form, the underwriting process begins.
The team at Asset Life Settlements goes to work assembling all necessary documents and evaluating various factors that impact the policy’s pricing. Steps generally include:
- Confirm receipt of signed HIPAA Form
- Request medical records from physicians/labs
- Purchase two Life Expectancy Certificates
- Conduct internal analysis of LE reports and medical records
- Contact carrier and request verification of coverage
- Obtain inforce policy illustrations from carrier
- Examine the policy’s carrier ratings
- Evaluate the policy’s remaining premium expenses, loans, and any shadow accounts
- Analyze which secondary market buyers are licensed in the insured’s state of residence
- Submit the case to multiple licensed secondary market buyers to request a pricing offer
How does the seller’s LE and policy premiums affect the buyer’s purchase price?
From the standpoint of the buyer’s ROI, the life expectancy of a policy seller is critically important to the pricing of a life insurance policy because it enables the buyer to project expected premiums, death benefits, and other relevant cash flows that the buyer will be responsible for once the policy is purchased.
Which brings us to the second most important variable in determining the buyer’s purchase price: The cost to maintain the policy. Policies involving a seller with a long life expectancy as well as higher premiums and loans on the policy rarely make it to the cash register.
Bottom line: The shorter period of time that a buyer has to pay premiums until the death of the insured, the more attractive the policy is from a purchasing and ROI standpoint, and the higher the offer to the policy seller.
Inasmuch as the seller’s life expectancy is critical to calculating accurate investment returns, some buyers have recently begun to supplement the information in the LE reports with lab data gained from blood tests and cheek swabs.
Take-Away
Whether you are a financial advisor representing a policy seller, or a senior who is researching the market to obtain the highest cash settlement for your unwanted policy, we are committed to providing the maximum value as your life settlement partner.
By absorbing the initial up-front costs, conducting an intensive underwriting process, and negotiating the highest possible offer, we are dedicated to earning your trust and delivering results.
If you would like to learn more about life settlements or have a potential case you would like to discuss, contact us at 1-855-768-9085.
