Life Partners Holdings Inc., based in Waco, Texas, has unveiled a plan to buy life insurance policies from healthy seniors and transform the contracts into 10-year bonds to be sold to investors.
| "They need the cash today vs. tomorrow for some immediate need." |
Michael
Beste, president of the Life Partners' institutional investment
division, expects the new sales operation to be up and running by late
November or December.
Life Partners is a viatical and
life settlement broker. A viatical is a contract in which a terminally
ill policyholder sells his or her life insurance
policy to an investor. The investor pays the premium on the policy and
collects the death benefit when the seller dies. The deal is usually
arranged by a viatical broker, who links terminally ill policyholders
with investors looking to buy a policy. Life settlements are similar in
nature, but they involve the life insurance policies of seniors rather
than the terminally ill. People who sell their policies "don't need the coverage
any more and don't pay increasing premiums," Beste says. "They need the
cash today vs. tomorrow for some immediate need." Beste says Life Partners has a "strategic alliance" with
an investment firm that specalizes in "securitization," which is the
transformation of assets into investments. The firm, which Beste would
not name, has provided Life Partners with a $100 million line of credit
to buy life insurance polices from healthy seniors aged 70 or older.
Included in that line of credit is money that will be used to pay
policy premiums. Beste says his company will buy life insurance policies
with a minimum face value of $500,000 and a maximum of $5 million. The
amount a policyholder would receive depends mostly on life expectancy.
Life Partners will use actuarial data to show how long a person has to
live. The longer a policyholders has to live, the less he or she will
receive for the policy because the trust company must pay more in
premium to keep the policy in force. He says that Life Partners will
not buy policies from people who have a life expectancy of longer than
10 years. After the policies are purchased, the investment firm will
transform the assets into bonds that will mature and pay out in 10
years. The bonds will be sold on the open market. To minimize the possiblity of fraud or high risk to
investors, Life Partners Holdings will not purchase policies that are
still under the two-year contestibility period and will only buy
policies issued from insurers rated "A" or higher by Standard &
Poor's or A.M. Best, two insurance ratings firms. (Visit Insure.com's Insurance Company Guide for insurance company ratings.)
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