Senior Settlements -- Prospects
Inevitably, in a discussion of markets, we need to begin identifying prospects. Let’s look more closely at just who is a prospect for a senior settlement. The senior settlement prospect has four important characteristics: age, life insurance need, health status and policy size.
As the name implies, senior settlements are designed for senior citizens. The ideal senior settlement prospect owns a life insurance policy on which the insured is at least age 65; by age 70, the insured is an even better prospect.
Need for insurance
The ideal prospect’s life insurance need has evaporated or changed. Insurance purchased to provide for a young family’s needs -- such as a college education -- may no longer seem so important when the children are grown. Perhaps a spouse has died or there has been a divorce. Changes in the tax code may eliminate the need for coverage to pay for estate taxes. If an individual, business owner, partner or trustee, he or she has considered lapsing the policy because estate or business needs have changed, or premiums have escalated (or both), he or she is a propect. A potential seller of an in-force policy should ask the following the questions:
Have family circumstances changed?
Have the projected income needs of heirs changed?
Has the projected need for estate liquidity changed?
Has the suitability of the insurance policies changed?
Has the performance of the life insurance policies changed?
Has the affordability of the life insurance policies changed?
The insured has experienced a moderate decline in health status since the policy was issued. He or she may have bypass surgery, developed high blood pressure, adult-onset diabetes or some other condition that shortens his or her life expectancy. Ideally, a senior settlement prospect will have a life expectancy of 13 years or less.
The life insurance policy’s face amount exceeds $250,000. Generally, the higher the face amount, the more attractive the prospect for a senior settlement. This requirement for large policies has led some to call these transactions “high net worth” settlements.