Every time we have a conversation with a prospect or client about life settlements, we find ourselves having to define terms we should all agree on by now. Granted, words are powerful, but sometimes, their meaning is lost even among those who should be on the same page. For example, the term “life settlement” is misused on a regular basis. The media, regulators, insurance and financial services professionals and even many market participants toss our industry terminology about and frequently use it incorrectly. We understand how this happens but, we also believe that until we can agree to stabilize the glossary of terms used in our industry, consumers, regulators, and others will continue to be confused by our marketplace.
Take the term “life settlement,” for example. Life settlement is a term used to describe both a process, a thing, a life insurance policy which has been sold by a consumer via the process, and, in many news articles and regulatory pronouncements, an investment instrument. In the last instance, the use of the term life settlement is frequently used, incorrectly I might add, to describe a fractional interest in a policy, a trust, shares of a fund, notes, bonds and debentures and other investment vehicles all based upon or tied to life settlement assets. These derivatives are not life settlements in and of themselves. There’s a difference between the asset itself and the many different structures through which money is raised to acquire and hold the assets. Furthermore, a life settlement is a life insurance policy, plain and simple.
Let’s face it, it’s easy to say “life settlements are a great investment” (they can be), or “life settlements are just death bonds” (they aren’t bonds at all) but in our business, like many others, the details matter – a lot. We should not allow the misuse of our glossary and as industry participants, we need to police ourselves and the media in all its forms to make sure the right terminology and the right messages are getting through. It’s not fun trying to keep the talking (and writing) heads, legislators, marketing folks and others on track but it’s critically important to our future.
So, for the record, as far as we are concerned “life settlement” is either (a) the process through which the consumer owner of an unwanted or unneeded life insurance policy sells it for the first time in a regulated transaction, or (b) a life insurance policy which (1) has been sold by its original consumer owner and (2) is now owned by someone other than its original consumer owner. Also, to be perfectly clear, a life settlement (the noun) is simply a life insurance policy in which, through a regulated process, the owner and beneficiary have been changed in exchange for something of value. It is not some mystical object suddenly imbued with new and amazing characteristics but it is a powerful asset well worth considering.