Understanding What the Passage of California’s Senate Bill 1837 Did For You: Unlocking the Power of Life Insurance Settlement Investing for Individual Investors
Welcome to the world of life insurance settlement investing, where California’s groundbreaking legislation, Senate Bill 1837, has opened up a whole new realm of possibilities for financially qualified individuals. This innovative law, passed more than two decades ago, believe it or not, has created a unique opportunity for investors to participate in the life insurance settlement market, offering potential benefits that are worth exploring. In this article, we’ll delve into the key aspects of Senate Bill 1837 and explain why it could be advantageous for investors to consider venturing into life insurance settlement investing.
Understanding Life Insurance Settlements
Before we dive into the legislation, let’s first understand what life insurance settlements (or often just “life settlements”) are: A life settlement is the term that is used to describe when a policyholder sells their life insurance policy to a third-party investor for an amount greater than the cash surrender value, but less than the death benefit. Typically, life settlements are purchased by institutional investors, such as hedge funds or investment firms. However, Senate Bill 1837 aimed to change this by creating legislation that regulates this opportunity for financially qualified individual investors in the state of California.
The Passage of Senate Bill 1837
Senate Bill 1837, signed into law in California in September of 2000, marks a significant shift in the life settlement landscape. It regulates investment transactions where individual investors, who meet certain financial qualifications, are given the ability to participate in this once-exclusive investment opportunity. This legislation ensures that the rights and protections afforded to policyholders are maintained while expanding the pool of potential investors. No longer would this world be somewhat akin to the “Wild West”. There would now be regulation.
Benefits for Individual Investors
- Portfolio Diversification: Life settlement investing provides a unique diversification opportunity for investors seeking to expand their portfolio beyond traditional assets.Since the performance of the investment is largely linked to the maturities of life insurance policies on senior citizens and contractually obligated payouts from some of the largest, strongest and oldest companies in the world (namely U.S. highly-rated life insurance companies), the risks associated are essentially unrelated to all of the other risks the rest of an investor’s portfolio is exposed to on a daily basis. By adding life settlements to their investment mix, individuals can reduce risk and potentially enhance returns, as life settlements have shown historically very low correlation with other asset classes.
- Potential Attractive Returns: Life settlements offer the potential for attractive returns. As investors, you can purchase life insurance policies at a discounted price and collect the death benefit when the insured individual passes away. The profitability of life settlement investments can stem from actuarial calculations, evaluating factors such as the insured’s age, health status, and policy terms.
- Ethical and Social Impact: Life settlement investing offers investors an opportunity to make a positive impact on individuals’ lives. By purchasing life insurance policies from policyholders who no longer need or can afford them, investors provide them with a lump sum of cash, enabling them to meet immediate financial needs or invest in their well-being during their lifetime.
- When, Not If: Benjamin Franklin is famously quoted as saying the only two certain things in life are death and taxes. Since an investor in life settlements is paid when a life insurance policy matures upon the death of the insured individual, eventually nature will take its course, as it does for all living things. When that happens, the investment gains are largely a matter of when this will happen, and not if. If you invest in a stock or a bond, you have to count on the performance and proper execution of a company’s business plan and its people, which can be affected by many, many different things. With life settlements, you only have to count on and wait for the inevitable to happen.
- Transparent and Regulated Market: Senate Bill 1837 establishes a regulatory framework that ensures the transparency and integrity of the life settlement market. This legislation requires providers to obtain a license, maintain records, and comply with certain disclosure and reporting requirements, protecting the interests of both policyholders and investors.
California’s Senate Bill 1837 has paved the way for financially qualified individual investors to participate in the previously exclusive world of life settlement investing. By embracing this unique opportunity, investors can diversify their portfolios, potentially earn attractive returns, and contribute to the ethical and social impact of the market. However, as with any investment, it is crucial to thoroughly understand the risks involved and seek guidance from honest financial professionals who specialize in life settlement investing.
Remember: Life settlement investing requires careful consideration, thorough due diligence, and a long-term investment horizon. The asset class is a long-term, illiquid investment and you need to have the appropriate risk tolerance, time horizon, and liquidity situation. By engaging in this alternative investment strategy, however, if appropriate for you, you can not only potentially enhance your financial position but also play role in making a meaningful difference in the lives of senior citizen policyholders.