The word on the street is that a specialty finance company was close to being brought to its knees due to a major cash call to pay life insurance premiums on acquired life insurance policies and needed a lifeline.
Life settlement companies acquire interests in life insurance policies from people (or businesses) who no longer need life insurance, people (or businesses) who have life insurance but are in serious need of cash and willing to sacrifice financial security for for their families or businesses in the hereafter for something now (albeit reduced). A number of life settlement companies are also involved in structured settlement factoring as a companion line of business.
When structured settlement payment rights are acquired as part of a structured settlement factoring transaction, its basically a one and done. Money is paid to acquire the rights and one simply has to rely on a life insurer (or in some cases a payment servicing company) to make the payments.
With life settlements, the purchaser of the life insurance payment rights has the additional responsibility of making premium payments, possibly for as long as the insured life lives. Prices are set based on an assumed life expectancy and an acceptable profit margin to the buyer based on the assumed life expectancy.
As we all know people are living longer and it's possible that projections may be off. I hate to sound macabre but the hurt to the buyer comes several years down the road when the accumulation of premiums from those having lived longer than expected results in a potentially devastating cash call to the life settlement purchaser.
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