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Toward the end of the last century, a change occurred in the life insurance arena that had dramatic benefits for life insurance policy holders and investors. This change laid the foundation for the business of our company. Originally, only one avenue existed to collect on a life insurance policy before it matured: the insured could surrender the policy to the issuing company for a small fraction of its face value. If the insured wanted to cash out his/her policy to cut expenses, to acquire funds to help with medical or living expenses, or just to improve quality of remaining life, he/she could not expect to receive a great deal. For example if a policy had a $1,000,000 face value, the policy holder might hope to receive $100,000 from the issuing insurance company.
In the late 1980s, a trend emerged whereby people could sell their existing life insurance policies to investors at a more equitable settlement than the life insurance companies were willing to offer. The development of this secondary market meant good news for people in certain challenging circumstances.
Now, instead of being able to receive only $100,000 on a $1,000,000 policy, the insured might expect to receive $250,000 from investors. The investors would then hold the policy until the insured passed away, at which point the policy would mature and the investors would collect the face value of $1,000,000.That type of transaction was known as a “viatical settlement”, defined as the purchase of an insurance policy from an insured with a diagnosis of a terminal illness.
In the mid-90s, another step in this evolution took place. The industry recognized the ability for seniors who do not necessarily have terminal illnesses, but in many cases, have significant chronic or degenerative conditions, to benefit from the same type of transaction. This transaction became known as a “life settlement”, the type of investment PWCG now provides.The life settlement transaction rapidly gained popularity with investors. While the time frame of a viatical settlement could potentially extend far beyond investor expectations due to misdiagnoses and medical advances, life settlements provided a more finite window because, simply stated, there is no cure for old age. Also, life settlements were attractive to senior policy holders for two primary reasons:
1. Many seniors needed money to meet rising medical costs; and
2. More seniors found themselves over-insured due to changes in estate tax laws.
In both cases, seniors found strong motivation to seek life settlement solutions and enjoyed substantial benefit as a result. More than just a better alternative than surrender value, they found life settlements to be a good deal.
Because its attractiveness to both investors and seniors makes it a true win-win situation, the life settlement market grew to approximately $5 billion by the turn of the century. With approximately $500 billion of outstanding life insurance on people 65 or older, the market is in its infancy and is poised for rapid growth.
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