Author: James Maxson

Lawyers whose clients participate in the life settlements industry devote significant time to ensuring that their clients strictly adhere to the requirements contained in life settlement laws. For life settlement providers, the rationale is that they do not want to put their licenses at risk and invite regulatory action, as well as not leaving open the possibility of challenges from sellers or their families who might regret having sold the policy. For the funds that purchase and aggregate life settlements, the first rationale is not applicable, but the risk that the provider failed to hew to the letter of the…

Most articles advocating in favor of life settlements1 do so with a hat tip toward compassion and fairness, but generally focus primarily on the economic benefits that a life settlement offers policy owners. Conversely, detractors of life settlements transactions frequently point to abuses, real and perceived, suffered by the sick and/or older individuals who are the primary sellers of life insurance policies. While there are reasonable bases for both positions, life settlements transactions present a person who no longer wants or needs their life insurance the opportunity to monetize an otherwise illiquid asset. While life settlements transactions undeniably benefit policy…

Interest in the life settlement asset class, the purchase of an unwanted and unneeded life insurance policy for a lump sum payment, has continued to grow steadily over the course of the last two decades because of potential double digit returns uncorrelated to the capital markets. The foundation for investors’ confidence in the asset class is that the policies purchased are legally originated and will not be subject to challenge by the policies’ former owners or beneficiaries. A recent decision from a federal court in Texas calls into question the viability of an often-used exemption from licensure and emphasizes how…

In addition to the important diligence issues associated with the pricing and valuation of life settlements, life settlements have characteristics that make thorough legal due diligence particularly important. Unlike stocks or bonds, there are no widely accepted exchanges across which life settlements trade, nor are there regulatory agencies, such as the Securities Exchange Commission, that mandate standardized disclosures to investors in the asset class. Hence, transactions tend to occur on a one-off basis, and are frequently subject to information asymmetry between the seller and the purchaser, heightening the need for robust due diligence. Some of the issues associated with life…