ACCUMULATION VALUE: A term used in Universal Life policies to describe the total of all premiums paid and interest credited to the account before deductions for any expenses, loans or surrenders.
ALLIANCE BERNSTEIN: Formed in 1987 it is one of the largest publicly traded global asset management firms with around $800b in assets under management. French insurer AXA owns more than half of the company. A subsidiary Sanford C Bernstein provides in depth research and portfolio strategy to its clients. Alliance Bernstein....
AM BEST: Wasfounded in 1899, it issues financial strength ratings measuring insurance company’s ability to pay claims. It also rates financial instruments issued by the insurance companies, such as bonds, notes, and securitization products. AM Best historically has specialized exclusively on the insurance marketplace. However, the company recently began issuing debt and financial strength ratings for small and mid-sized commercial banks. Policyholders and depositors rely on Best’s ratings and analysis as a means of assessing financial strength and creditworthiness of risk-bearing entities and investment vehicles. AM Best Company....
ASSIGNMENT: The transfer of the ownership rights of a Life Insurance policy from one person to another. The term also refers to the document that affects the transfer which is part of the Escrow process.
BENEFICIARY: A person who may become eligible to receive or is receiving benefits under an insurance policy other than a participant. The beneficiary has no rights to determine the disposition of a life insurance policy unless they are also the owner.
BERNSTEIN REPORT: Anin depth report regarding the economic drivers in the Life Settlement market and the benefits attainable by market participants. Request report....
CASH SURRENDER VALUE (CSV): The cash surrender value of a permanent life insurance policy is the amount you receive if you terminate or surrender a life insurance policy before it becomes payable by death or maturity.
CLASS v INDIVIDUAL: In the context of Life Insurance and Life Settlements, the concept of the Class v Individual ontology is the basis for why Life Insurance companies are unable to pay the insured more that the contracted and regulated Cash Surrender Values, and for the rise and ability of the Life Settlement market to provide a greater economic alternative to an insured contemplating lapsing or surrendering their policy. Essentially if a Life Insurance company increased the CSV for one, they would have to increase it for all.
CONTESTABLE PERIOD: Typically a two-year contestable period during which an insurer has the right to void the contract if fraud or material misrepresentation by the insured is discovered. eg: suicide within the first two years of the policy being taken out.
DEATH BENEFIT/NET DEATH BENEFIT: The amount stated in a Life policy contract as payable upon the death of the person whose life is being insured
ESCROW: Escrow is a legal arrangementin which an asset is held in trust pending the fulfilment of conditions in a contract such as payment of a purchase price. While Escrow is best known in the US in the context of real estate, Escrow companies are used for the transfer of high value personal and business property. The entity that holds the assets is the Escrow agent, and the account in which they are held is an Escrow account.
ESCROW AGENT: An independent entity charged with the fiduciary responsibility for the transfer of property between parties. The funds are held by the Escrow service until it receives the appropriate written instructions that obligations are fulfilled. An Escrow agent will hold the assets until the transaction is validated. James Group and Capital Settlements use the services of Pacific Northwest Title, a division of North American Title the largest Escrow and Title Company in the USA.
FACE VALUE/FACE AMOUNT: Is also known as the Death Benefit, and is the amount of money payable to the beneficiary upon the death of the insured.
FINANCIAL ACCOUNTING & STANDARDS BOARD (FASB): Created in 1973the FASB is a private, non-profit organization whose primary purpose is to develop Generally Accepted Accounting Principles (GAAP) within the US in the public’s interest. The Securities and Exchange Commission designated the FASB as the organization responsible for setting accounting standards for public companies in the US. The FASB specifically addressed the accounting for Life Settlements in FSP FTB 85-4-1....
FITCH: An international credit rating agency headquartered in New York and London. Fitch is the smallest of the big three, covering a smaller share of the market than Moody’s and S&P. It frequently positions itself as a “tie breaker” when the other two have similar ratings. Fitch Ratings....
GRACE PERIOD: A provision in most loan and insurance contracts which allows payment to be received for a certain period of time after the actual due date. During this period no late fees will be charged, and the late payment will not result in default or cancellation of the policy. Typically the grace period is usually 30 days from the premium due date.
HEDGING: A strategy designed to reduce the risk of the loss caused by fluctuations in, for example, equity prices, interest rates, and foreign currency exchange rates.
HEDGE FUND: An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns. For the most part, hedge funds are unregulated because they cater to sophisticated investors. Although hedging is the practice of reducing risk by utilising different strategies the goal of most hedge funds is to maximise their return on investment, hence the hedge fund managers do make speculative investments.
HEALTH INSURANCE PORTABILITY and ACCOUNTABILITY (HIPAA): James Group and Capital Settlements are compliant in all aspects of the HIPAA Statute Title II, Preventing Health Care Fraud and Abuse; Administrative Simplification and Medical Liability Reform. We utilise HIPAA compliant releases signed by the insured to have access to their medical records and status and the ability to assign this right of access for future investors/owners and tracking entities.
INCONTESTABLE PERIOD: A provision stating that the insurance company agrees to refrain from challenging claims by the insured after a stipulated period has passed, typically two years.
INSURABLE INTEREST: In relation to insurance, the law prevents people taking out an insurance contact on someone else’s life unless they have a legal or financial insurable interest in that life. This concept of insurable interest was established to prevent gambling on the lives of others and the taking out of Life insurance of someone else’s life and then arranging for that person to die.
INTERNAL RATE OF RETURN (IRR): Is a capital budgeting/comparison tool used by companies to decide whether they should make investments. It is an indicator of the efficiency of an investment, as opposed to Net Present Value (NPV), which indicates value or magnitude. The IRR is the annualised effective compounded rate of return which can be earned on the invested capital, ie the yield on the investment. An investment is a good proposition if the rate of return earned is greater than alternative investments in government bonds or bank deposits. Thus the IRR should be compared to any alternate costs of capital including an appropriate risk premium. Mathematically IRR is defined as any discount rate that results in a NPV of zero of a series of cash flows. Read more...
LEGAL RESERVES: The minimum amount of bank deposits or life insurance company assets required by law to be kept as reserves. Bank reserves are regulated by the Federal Government, whereas Life Insurance reserves are regulated by individual State Insurance Commissions and are stringent in regards to what assets can be held and what ratios to unfunded liabilities are allowed. Life insurance Reserves are so robust that they are the second largest land owner in the US behind the Government.
JOINT & LAST SURVIVOR POLICY: A life policy issued on two underwritten insured’s, and payable upon the death of the last survivor. Usually they have premiums far lower than a couple owning individual policies.
LIFE EXPECTANCY: The average remaining number of years an individual is expected to live, based on IRS issued life expectancy tables. Also referred to as the average life span. It is used mainly by insurance companies to determine your premium.
LIFE INSURANCE: An agreement that guarantees the payment of a stated amount of monetary benefits upon death of the insured.
LIFE SETTLEMENT: A Life settlement is the sale of an existing in force life insurance policy by a person who has a minimum life expectancy of two years or more. A Life Settlement investor pays the policy owner an amount that is higher than the cash surrender value of the policy but less than the death benefit. When the insured person dies the new policy owner collects the death benefit and makes a profit on the difference between the amount paid to the insured and the amount paid on the claim. Typically the purchaser is an experienced institutional investor, and policies will have a face amount in excess of $250k.
LIQUIDITY: The ability to convert an asset or security which can be brought or sold in the market without affecting the assets price. Liquidity of Life Settlements is continuously improving as the market continues to grow and velocity is generated. Typically liquidity may take 90 days or less after the policy has aged, due to the value increasing criteria such as the insured’s birthday and further degradation in health condition.
LOAN VALUE: A term which refers to the amount of money an insured can borrow using the cash valve of their Life Insurance policy as security.
MEDICAL PROFILER: Performs an updated life expectancy based upon the insured’s age, gender and most recent updated medical records which also include family histories, medications, surgeries and a complete summary of current conditions. The profiler takes these variables into consideration when reviewing the records, when applying the various accepted mortality tables.
MONOPSONY: In economics a monopsony is a market form with one buyer facing many sellers; it is an instance of imperfect competition. As opposed to a monopoly where there is one seller facing many buyers.
MOODYS: Founded in1909, it is one of the world’s most respected and widely utilized sources for credit ratings, research and risk analysis on commercial and government entities. The company has a 40% share of the world credit rating market. Berkshire Hathaway is one of the top institutional owners of Moody’s.Moody’s Investor Services....
MOODYS REPORT: In depth report regarding the economic drivers in the Life Settlement market and the benefits attainable by market participants. This report is available from Capital Settlements upon request. Request report....
MORTALITY RATE: The number of deaths in a group of people usually expressed as deaths per thousand. It can be the rate for the total population, called the crude mortally rate, or it can be refined by factors such as age groups or causes of death.
MORTALITY TABLE: A table showing the incidence of death at specified ages. It shows the number of persons in each age group that die, expressed in terms of deaths per thousand, and based on the deaths in a population of a million persons.
NET PRESENT VALUE (NPV): Is a standard method for the financial appraisal of long term projects. Used for capital budgeting, it measures the excess or short fall of cash flows in present value (PV) once financing charges are met. NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive it should be accepted. However if the NPV is negative it should be rejected because cash flows will also be negative. Read more.....
NONFORFEITURE VALUES: Those values in a Life Insurance policy that by law the policy owner cannot forfeit even if he ceases to pay the premiums. These benefits are the cash surrender value, the loan value, the paid up insurance value, and the term insurance value. The policy owner may choose one of these nonforfeiture options, but even if he fails to do so, the one specified in the contract for such a case automatically goes into effect.
OWNERSHIP: All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insured’s. Ownership may be assigned or transferred by written request of the owner.
PATRIOT ACT: An act swiftly passed in the US after the terrorist attack on the World Trade Centre. There are provisions to prevent money laundering, which may affect any transfers of funds into, and ownership of assets in the USA.
POLICY LOAN: A loan made by an insurer to a policy owner of part or all the cash value of the policy assigned as security for the loan.
POLICY PROCEEDS: The amount actually paid on a life insurance policy at death or when the insured receives payment at surrender or maturity. It includes any dividends left on deposit and the value of any additional insurance purchased with dividends; and it excludes any loans not repaid, plus unpaid interest in those loans.
PREMIUM: The specified amount of payment required periodically by an insurer to keep the policy in force under a given insurance plan for a period of time. The premium is paid by the insured party to the insurance company, and primarily compensates the insurer for bearing the risk of a payout when the death benefit is required.
PREMIUM FINANCED POLICIES: Also known as Stranger Owned Life Insurance (SOLI), in which the policies premiums are financed by a financing company and the death benefit is the collateral and recourse. James Group and Capital Settlements Ltd does not invest in SOLI’s.
RATING: The ability of an entity or securities issued to repay principle and interest payments on a timely basis.
REQUIRED ANNUAL PREMIUM (RAP): A premium normally found on more recent policies in which the insurer has front loaded a portion of their mortality charges earlier in the life of the policy. These RAPs are the minimum payable to maintain a policy in force and after the RAP per period, premiums are usually lower.
REVOCABLE BENEFICIARIES: The beneficiary in a Life Insurance policy in which the owner reserves the right to revoke or change the beneficiary.
STANDARD AND POOR’S (S&P): Dates back to 1860 and is the largest and foremost source of independent equity research, risk and governance evaluation and mutual fund analysis. S&P parent company also owns the respected Businessweek magazine. Standard & Poor’s....
TRACKING: A service performed after the purchase of a Life Settlement to monitor the health and status of the insured. The tracking service has an authority and release from the insured to have continual contact with their physicians with access to medical records as well as a list of informed relatives. Contact and tracking may take many forms, from scheduled phone calls to insured, relative or care giver, to bounce back cards and computerised tracking of social security records, obituaries and utility records.
TRUST AGREEMENT: (1) A supplemental agreement attached to and made a part of a Life Insurance policy setting forth the manner in which the proceeds are to be paid, in lieu of having them paid in a lump sum or one of the other instalment settlement options in the policy itself. (2) An agreement or instrument under which a corpus (funded/property) is given over to the management of the trustee named in a trust instrument for the benefit of the beneficiaries of the trust. (3) A written agreement between two parties, the employer and the trustee, setting forth the provisions of a pension plan.
UNIVERSAL LIFE (UL): A type of flexible permanent life insurance offering the low cost protection of Term Life, and a saving element as in Whole Life which is invested to provide an embedded cash value build up. Unlike Whole Life insurance, UL allows the policyholder to use the interest from their accumulated savings to help pay premiums. UL was created to provide more flexibility than Whole Life by allowing the policy owner to shift money between the insurance and savings components of the policy. The death benefit, savings element and premiums can be reviewed and altered as a policyholder’s circumstances change The variable premiums are broken down by the insurance company into insurance and savings components, allowing the policy owner to make adjustments based on their circumstances. For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums. Unlike Whole Life insurance, UL allows the cash value of investments to grow at a variable rate that is adjusted monthly.
UNSCHEDULED PREMIUM PAYMENTS: In Universal Life insurance, the policyholder can pay extra premiums in addition to the scheduled premium amount. These payments can be made at any time but are subject to a minimum amount.
UNDERWRITTING: Refers to the process that a large financial service provider uses when assessing the providing of access to their financial products. An insurance company underwrites your policy when it agrees to take the risk of insuring your life in exchange for the premiums you pay. The name is derived from Lloyds of London who would accept some of the risk of a given venture in exchange for a premium, they would literally write their names under the risk information.
VIATICALS: Viatical settlements involve the sale of a life insurance policy by a terminally ill person with a life expectancy of less than two years. These are not Life Settlements. James Group and Capital settlements Ltd and does not invest in viaticals.
VERIFICATION OF COVERAGE (VOC): Proof from the Life Insurance Company which contains all the titled ownership information as well as the status, financial condition and history of a life insurance policy. This is part of the Escrow process while purchasing Life Settlements.
WHARTON REPORT: Wharton University founded in 1881 is considered one of, if not the most prestigious financial learning institution in the world. In 2002 Wharton’s in depth report was the first ever regarding the economic drivers and benefits attainable in the Life Settlement industry. It also covers Life Settlements effect on Life Insurance carriers. Wharton Report....
ZERO COUPON BOND: Are bonds that do not pay interest during the life of the bond. Instead, investors buy zero coupon bonds at a deep discount from their face value. When a zero bond matures, the investor will receive one lump sum equal to the initial investment plus interest that has accrued. The maturity dates on zero coupon bonds are long term, and many do not mature for ten or fifteen years, eg government, treasury and municipal bonds. The long term maturity dates allow an investor to plan for a long range goal, with the deep discount an investor can put a small amount of money away that can grow over many years. Life Settlements behave in a manner very similar to Zero Coupon Bonds, but have a variable maturity and the need to pay premiums until maturity.