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Due Diligence Procedures
Even though no one can predict the actual longevity of a single individual,
LCI takes specific steps to gain the greatest understanding of and accurately
update the life expectancy of an insured person. For each policy, LCI
engages the services of a best-of-breed independent third-party life
industry valuation company to obtain life expectancy evaluations. These
are premier companies in the field of life expectancy evaluations and
insurance underwriting, which perform their evaluations based on the
latest medical records, family history, and other information pertinent
to an individual’s life (using the same expert data that investment
grade life insurance companies use to underwrite the original policy).
This analysis enables these health professionals to create a more individualized
statistical calculation than standard mortality tables provide and determines
a life expectancy on the insured of the policies LCI considers for purchase.
We typically purchase policies that have between a seven to ten-year
life expectancy. Furthermore we only purchase policies that have already
been in place for more than two years and are “uncontestable” by
policy standards.
When acquiring LSPs:
- LCI nominates a licensed escrow company, the method and timing of
funds transfer; the life expectancy agreed upon for calculating premium
payments; the criteria for the policies to be procured, including but
not limited to the rating of the carrier; life expectancy of the insured;
scrutiny of the quality of the medical evaluations provided; cost of
the premiums; contestability standards, and many other benchmarks in
determining a suitable policy.
- Once an insurance policy meeting the above criteria has been located,
it will be placed into escrow with appropriate instructions provided
for the escrow officer to meet the disbursement parameters. The
funds for the specific policies designated as the collateral assets
are then placed into escrow and transferred to a second escrow to pay
for the LSP’s. This procedure is repeated with each policy
until the total aggregation of the required collateral assets has been
met.
- The escrow company is paid the fees for their services; funds are
transferred into escrow to pay the premiums for the agreed upon term;
funds are then transferred to a trust account for servicing. Life
insurance policy premiums are paid out of this escrow account annually
until maturity, unless prepaid prior to sale, or alternate arrangements
are made.
- LCI will be the Named Beneficiary as a fiduciary in trust for investors. The
proceeds from the maturity of the policies will be paid in full directly
by the insurance company Proceeds from policies that mature early will
be distributed to investors or can be reinvested in additional policies.
Each LSP purchase will have the following checklist of documents:
- Life Insurance Policy Purchase Agreement
- Insured’s authorization to release medical records
- Seller’s authorization to release policy information
- Original complete copy of life insurance policy
- Insured’s Divorce Decree (if applicable)
- Insured’s spousal release and consent to change beneficiary
- Change of owner and beneficiary from the insurance carrier
- Verification of coverage from the insurance carrier
- Final confirmation of all values from the insurance carrier
- Written acknowledgement from the carrier as to the changes into
the buyer’s name
- Medical review and certification of life expectancy
- Copy of Expectancy Certificate
- Medical letter of insured’s competency
- Authorization by the insured to track health quarterly
The above is an explanation of procedures for
obtaining Life Settlement Policies to be used as financing collateral
in venture capital projects and/or for potential private or institutional
investment purposes. This
material is for educational purposes only, and is not intended as a recommendation
or solicitation of any kind. Anyone contemplating such a purchase should
check with their legal counsel or financial advisor to determine if Life
Settlement Policies are an appropriate vehicle for his/her situation.
View Wharton Business School Financial Institutions Study
On "Benefits
Of A Secondary Market For Life Insurance Policies" (PDF) |
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