Life Insurance Settlement Glossary for Life Settlement Consulting

Life Insurance Settlement Glossary

Agent: (see producer) A life insurance or life settlement agent is an individual who has direct client relationships. The agent works with brokers.
Beneficial Interest: The rights to receive distributions of interest or principle from a trust.
BI Trade - Beneficial Interest Trade: This is industry slang for the trade-in beneficial interests of trusts that own life insurance policies. This is a technique to mask the underlying ownership of a policy typically from the life insurance carrier.
Broker: A life settlement broker is a retail intermediary who corresponds with providers and producers to create viable life settlement business.
Cap Rate - Capitalization Rate: A financial projection used in making assessments about an investment under consideration. It means the percentage profit return anticipated on an annual basis. It is calculated by dividing the expected annual profit by the original amount to be invested.
Contestable Life Settlement: This term refers to a transaction taking place during the 2 year contestability period. Contestable Life settlements are "Wet Paper".
COI - Cost Of Insurance: An insurance term describing the issuing life carriers' monthly minimum charge to keep the death benefit of a life policy going for the next period (month).
Escrow: A special status where property is held for the benefit of others and will be turned over to another upon the fulfillment of an agreement. In a life settlement, the buyer normally deposits the purchase amount into an escrow account pending the completion of the transaction.
Full Recourse Premium Finance: A premium finance arrangement where the credit and loan re-paying ability of the borrower is the key criteria in making the lenders' credit decision. The borrower posts collateral in addition to the policy to be financed and becomes personally obliged to re-pay the loan. The life insurance industry is, in general, very comfortable with this arrangement.
Hybrid Premium Finance: A premium finance arrangement where the projected secondary market value (life settlement value) of the life insurance policy is the key criteria in making the lenders' credit decision. The borrower either posts a modest amount of collateral beyond the insurance policy and may or may not become personally obliged to re-pay some or all of the loan. The lenders' recourse for non payment of the loan is to take the policy held as collateral. There is an industry assumption that lenders making these loans will not be aggressive in pressing for collection beyond taking the policy because the policy was underwritten for secondary market (life settlement) value in the loan underwriting process. The life insurance industry has mixed feelings about this arrangement. Some carriers are very adverse to this arrangement as it is a prescription for a life settlement made at the issuance of the policy contract. Other carriers look the other way and take the business.
In Force Ledger: Projections of future premium costs to keep existing in-force life policies going until a stated age or until policy maturity. These are prepared in sales ledger format by the home offices of issuing life insurance companies upon request by the owner or their advisor.
IRR- Internal Rate of Return: (see ROI and Cap Rate) The percentage profit return anticipated or actually earned on an annual basis. It is calculated by dividing the expected or actual annual profit by the original amount to be or already invested. Synonymous with ROI.
LE - Life Expectancy: An estimate, usually expressed in months, made by medical actuaries as to the average duration that a particular individual is likely to live. These assessments are made based upon demographic stats as well as a review of individual medical records.
LE- Life Expectancy Study: Medical actuarial reports that are the lynch pin of the life settlement industry. All parties use these studies in combination with other factors to make assessments about every policy under consideration or in a portfolio. The shorter the absolute life expectancy report is, the relatively higher value is placed upon policies insuring that life. There are a number of firms specializing in providing these studies to the life settlement industry including; AVS, 21st Services, Fasano, EMSI, and Mid-West.
LISA - Life Insurance Settlement Association: This industry trade group is the oldest and most prestigious life settlement industry group. They set standards for the industry participants to follow as well as sponsor industry education and lobbying efforts.
Life Settlement: Life Insurance Settlements - A transaction where the owner of a life insurance policy sells the policy to an investor, usually for cash. The new owner is responsible for all ongoing premiums and receives the policy death benefit when the insured dies. The insured is not terminally ill and is under no particular duress to sell.
Milliman Consulting: A large actuarial firm that is a key provider of analytic tools and consulting to the life settlement industry.
Milliman Software: The standard life settlement valuation software that a majority of competent life settlement professionals use to know the facts about relative values before attempting to negotiate, buy, or sell life insurance policies.
NAIC - National Association of Insurance Commissioners: This acronym refers to the organization of state insurance commissioners who share information and suggest "Model" laws to regulate the insurance industry
NCOIL- National Council of Insurance Legislators: This acronym refers to the organization made up of state legislators who typically serve on insurance committees in their respective states. This group attempts to encourage information sharing and common legislative proposals affecting insurance regulation and legislation.
Non - Recourse Premium Finance: A premium finance arrangement where the projected secondary market value (life settlement value) of the life insurance policy is the key criteria in making the lenders' credit decision. The borrower does not become personally obliged to re-pay the loan nor does he post any collateral beyond the policy. The lenders recourse for non payment of the loan is to take the policy held as collateral. The life insurance industry is very adverse to this arrangement because it is a prescription for a life settlement made at the issuance of the policy contract.
Premium Finance: The process whereby premiums on life insurance are advanced by a lender loaning the premium dollars to the owner of the policy.
Provider: In the life settlement industry, providers act much like mortgage bankers do in the real estate market. Providers typically receive cash or credit lines from institutional life settlement investors and work with guidelines as to what type of policies they should purchase for the account of the investor.
ROI- Return on Investment: (see IRR and Cap Rate) Refers to the percentage profit return anticipated or actually earned on an annual basis. It is calculated by dividing the expected or actual annual profit by the original amount to be or already invested. Synonymous with IRR.
Seasoned Paper: Life settlement industry slang referring to life settlement policies put up for sale beyond the 2 years of contestability has elapsed. The normal life settlement trade consists of seasoned paper only.
Senior Settlement: See Life Settlement
Spin Life: This is a slang term referring to investors who use cash or other inducements to entice seniors to buy and immediately transfer (Spin off) their life policies to these investors. The life insurance industry is intent on eliminating this practice. This is also known as "STOLI". In Florida it is a felony to solicit life insurance for the purposes of making a life settlement (Read Statute).
STOLI- Stranger Originated Life Insurance: This is a slang term referring to investors who use cash or other inducements to entice seniors to buy and immediately transfer their life policies to these investors. The life insurance industry is intent on eliminating this practice. This is also known as "Spin Life". In Florida it is a felony to solicit life insurance for the purposes of making a life settlement (Read Statute).
Trustee: An individual or organization that accepts responsibility and has the powers to act on behalf of another. This occurs most commonly in a trust. The trustee has the power and authority to conduct business on behalf of the client. The trustee signs as owner on behalf of trusts owning life insurance.
Viaticle Settlement: A secondary market transaction to buy a life policy when the insured is terminally ill or otherwise has a life expectancy of less than 36 months.
Wet Paper: Life settlement industry slang referring to life settlement policies put up for sale before the 2 year contestability period is up.

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